On Friday, stocks advanced with the energy sector leading the way higher as a result of the International Energy Agency’s revision of global oil demand estimates. Chevron Corporation (NYSE: CVX), Halliburton Company (NYSE: HAL) and Schlumberger Limited (NYSE: SLB) gained on a low-volume day that ended a multiple holiday week.
The utility sector fell following the explosion of a natural gas pipeline owned by PG&E Corporation (NYSE: PCG). PCG dropped 8.4%, and the sector was off 4.03%.
There was also a report of bigger-than-expected Chinese imports and a larger-than-expected increase in inventories of U.S. wholesalers.
With regard to the inventory situation, the Wall Street Journal quoted one financial adviser as saying, “That is a sign that businesses are now starting to restock. We’ve actually been waiting a good many months for them to start to do this. Usually they won’t start restocking until they see the demand coming.”
Treasury prices were down again on Friday, as economic data seemed to indicate that the feared “double dip” is more unlikely. The 10-year note fell, pushing yields to 2.795%. And the U.S. dollar rose versus a basket of currencies, but the euro also rose to $1.2718 from $1.2699 on Thursday.
At the close, the Dow Jones Industrial Average gained 48 points to 10,463, the S&P 500 rose 5 points to 1,110, and the Nasdaq gained 6 points, rising to 2,242.
The NYSE traded 755 million shares, and the Nasdaq crossed 477 million shares. Advancers outnumber decliners on both exchanges by about 1.5-to-1.
For the week, the Dow rose 0.1%, the S&P 500 gained 0.5%, and the Nasdaq rose 0.4%.
Crude oil for October delivery gained $2.16, rising to $76.41 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) was up 56 cents to $54.52.
December gold fell $4.40 to $1,246.50 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 185.20, up 1.71 points.
What the Markets Are Saying
Despite the volatility, the key indices closed out the week at almost the same levels as the prior week. The S&P 500 was 5 points higher, the Nasdaq was 9 points higher, and the DJIA closed higher by just 15 points. The 200-day moving average in each index marked the top of its trading range, and so far the major indices have failed to close above it.
After over four months of back and forth between S&P 500 1,040 and 1,130, stocks have made no headway. So even though the major indices are again knocking on the door of the resistance zones, there is no indication that the bulls will succeed in breaking the massive overhead that begins at the respective 200-day moving averages.
Even if a breach of these levels was made, as occurred in June and August, the chances are better than even that selling would prevail and again send stocks back to at least the indices’ 50-day moving averages. For the Dow that would mean a pullback of over 150 points, and for the S&P 500 it is about 35 points.
But if the bulls prevail and are able to charge above the 200-day with determination, as shown by high volume, the outlook could suddenly change. And if that happens, an immediate charge to the summer’s top at 1,131 is likely.
Our internal indicators are now universally overbought, but not quite to the level of either June or August. Therefore, it is probable that we could see the bulls move prices to just above the 200-day moving averages. This could set up the market for the third bull trap in three months with a reversal back to support at close to the August lows.
Again, if you are a long-term investor, it is time to sell some of your non-performers and hold cash. With the exception of certain high-dividend stocks, a better buying opportunity is likely to show up sometime this month.
But traders should prime themselves by reviewing their favorite trading strategies. Puts, inverse ETFs, and short sales are likely candidates. But timing is everything. Early this week, expect a meaningful rally and then a reversal down before jumping back into the arena.
Today’s Trading Landscape
Earnings to be reported before the opening include: K12 and Matrix Service.
Earnings to be reported after the close include: Globecomm Systems and H.B. Fuller.
Economic report due: Treasury budget (the consensus expects -$95 billion).
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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