The newest European bank crisis faded, so investors bought some stocks yesterday. The major indices closed higher despite mixed economic signals.

As might be expected, financial stocks, and especially the banks, benefitted from the news from Europe. JPMorgan Chase & Co. (NYSE: JPM) rose 2.2%, Bank of America Corporation (NYSE: BAC) gained 1.2%, and Goldman Sachs Group, Inc. (NYSE: GS) rose 1.6%. 

But regional banks were the strongest in the sector, up 2.5%, following a fall of 3.9% on Tuesday. BB&T Corporation (NYSE: BBT) rose 2.29%, Fifth Third Bancorp (NASDAQ: FITB) gained 1.93%, and Huntington Bancshares Incorporated (NASDAQ: HBAN) jumped 5.29%.

The Fed’s Beige Book report on economic activity revealed widespread signs of a slowing economy. Stocks pulled back shortly after the report was made public. But later, following President Obama’s speech and an explanatory statement from the Fed, stocks regained the losses, only to fall again just prior to the close.

At the close, consumer credit data was released showing that in July credit fell $3.6 billion, an increase from June’s fall of $1 billion. 

The euro gained on the greenback. And the Canadian dollar jumped following a 0.25% increase in interest rates to 1% by the Bank of Canada. The Australian dollar and British pound also gained against the U.S. dollar.

At the close, the Dow Jones Industrial Average was up 46 points to 10,387, the S&P 500 rose 7 points to 1,099, and the Nasdaq gained 20 points to 2,229. 

The NYSE traded 880 million shares, and the Nasdaq crossed 577 million shares. On both exchanges advancers were ahead of decliners by about 2-to-1.

October crude oil rose 58 cents to $74.67 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) closed at $53.85, up 46 cents. 

Gold for December delivery fell $1.80 to $1,257.50 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) fell 0.55 points to 186.82.

What the Markets Are Saying

Stocks traded in a narrow range yesterday with the Dow, S&P 500 and NYSE Composite all within the range of Tuesday’s trading. Only the Nasdaq managed to trade beyond its prior range as it bested Tuesday’s high by 6 points and closed 20 points higher.

But volume again was anemic, and this doesn’t bode well for the bulls. As they attempt to push above the overhanging 200-day moving average, the bovines will have to bring in some heavier beef to get the job done since they have failed twice this year, over many days, to hold above that line.

Some of the more bullish technical gurus are seeing an inverse head-and-shoulders formation on the S&P 500. They say in order to complete the formation a neckline at 1,128 would have to be bested. That break would give a target of 1,233, which would be just over the April high of 1,220. Sorry, folks, I just don’t buy it.

Instead, with volume declining, as the 200-day barrier approaches and our internal indicators move rapidly toward overbought areas, the most prudent course is to treat the 200-day as what it has been since May — a major resistance line. And stocks usually reverse down from major resistance. 

Also, the latest Investors Intelligence report just arrived, and it shows the advisers bullish reading moving higher to 33.3% from 29.4% the week before, which is bearish. But, just to keep us off balance, the bears moved to 32.2% from 37.7%, and that’s bullish. In my opinion, one offsets the other, which may mean that the sideways trading will continue with stocks falling from the 200-day moving average.

There is another persuasive argument against the bulls, and that is history. September and October have consistently been the worst two months for stocks for over 20 years. But following Halloween the “good” months begin again. Remember the old adage, “Sell in May and go away”? The “go away” ends in late October.  

So we will watch and wait. There is no need to jump in on the long side unless the market tells us that its intentions are bullish. Sticking to our basic principle of being responsive to the market’s signals rather than being predictive has paid off so far this year, so we will wait.

However, there is one gold stock you should go long now.

Today’s Trading Landscape

Earnings to be reported before the opening include: Korn/Ferry, Piedmont Natural Gas and Stewart Enterprises.

Earnings to be reported after the close include: National Semiconductor and Smith & Wesson.

Economic reports due: international trade (the consensus expects -$46.8 billion), jobless claims (the consensus expects 470,000), EIA natural gas report, EIA petroleum status report, Fed balance sheet and money supply.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

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