A late rally yesterday salvaged the markets from what appeared to be a failure to hold at the important support line represented by the 200-day moving average of the major indices.
The early weakness was caused by a lower-than-expected Empire Manufacturing Index for September. The index had been expected to come in at around 6.4, and instead only made it to 4.1 versus an August reading of 7.1. And industrial production for August increased by 0.2%, which was also a disappointment.
Japan intervened to cap the rising yen by injecting $20 billion into the currency markets. The intent was to devalue the yen, and the U.S. dollar immediately jumped to 84.50 yen, driving the yen down by 3%. The intervention came following a rise of 14% since May, and is the largest intervention on record by the Bank of Japan to cap the yen.
Both health care stocks and technology issues were strong yesterday. The health care sector gained 0.8% headed by Savient Pharmaceuticals, Inc. (NASDAQ: SVNT), up 35.38%, following the approval by the FDA of a new drug to treat gout. Technology stocks rose 0.6% despite a pullback by semiconductor stocks of 0.3%.
Treasurys traded slightly higher pushing the 10-year note down to a yield of 2.72%.
At the close, the Dow Jones Industrial Average was up 46 points to 10,572, the S&P 500 rose 4 points to 1,125, and the Nasdaq gained 12 points to 2,301.
The NYSE traded 901 million shares with advancers just slightly ahead of decliners. The Nasdaq crossed 578 million shares with advancers ahead of decliners by 1.33-to-1.
Crude oil for October delivery fell 78 cents to $76.02 a barrel, in response to a stronger dollar, and the Energy Select Sector SPDR (NYSE: XLE) fell 11 cents, closing at $54.66.
September gold fell $3 an ounce to $1,266.70 as profit-taking dominated trading. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 190.26, off 0.44 points.
What the Markets Are Saying
With yesterday’s push, all of the major indices have held above their respective 200-day moving averages for three days. But instead of volume picking up and the sellers being overwhelmed with buy orders, the market is very sluggish. However, a late rally yesterday, which looked more like a run on the shorts than a romp by the longs, did manage to salvage a gain.
But instead of a breakout, the buying ended with a two-minute sell-off that drove the Dow down 16 points. That doesn’t seem like much, but the climax was not what is expected of a dynamic breakout, and even turned the pattern into a narrow double-top with a slightly lower intraday high versus Tuesday’s high.
Our internal indicators, chiefly Moving Average Convergence/Divergence (MACD) and the slow stochastic, are grossly overbought, momentum matches the highs of June and August, and Relative Strength Index (RSI) is higher than either of those months.
As for the sentiment indicators, the Investors Intelligence, a reverse indicator, reported yesterday that their adviser bullish sentiment is now at 36.7 versus 33.3 last week, and 29.4 on Aug. 31, while the bearish sentiment has fallen to 32.2 from 34.5 and 32.9 during the same period. I’ll report the AAII sentiment numbers tomorrow. But even without the AAII numbers, our most-watched indicators are telling the bulls to be very cautious and the bears to prepare for action.
Once again, the bulls have failed to make a hard charge into the resistance that has held them at bay twice in the past four months. They can still punch through, but time is running out and the bulls appear as docile as my little Shih Tzu who spends most of her time asleep on the sofa.
Now may be the perfect time to invest in a gold ETF.
Today’s Trading Landscape
Earnings to be reported before the opening include: FedEx, Marcus Corp. and Pier 1 Imports.
Earnings to be reported after the close include: CKE Restaurants, Dynamex, Herman Miller, Oracle and Research In Motion.
Economic reports due: producer price index (the consensus expects 0.3%, and 0.1% ex-food and energy), jobless claims (the consensus expects 455,000), current account deficit, Treasury International Capital, Philadelphia Fed Survey (the consensus expects 3.8), EIA natural gas 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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