Stocks traded within a narrow band yesterday, as investors digested the broad gains of Tuesday. But blue-chip buyers drove the Dow Industrials to another five-month high as 20 of the Dow’s 30 stocks gained ground.
However, the gains were not easily achieved, as traders were quick to take profits. Volume continued to be light with most investors staying away from the markets in advance of Q3 earnings. In addition, a report yesterday showed that private-sector jobs in the United States unexpectedly fell last month by 39,000. The ADP Employment Change report had been expected to show an increase of 10,000 payrolls.
Some of the energy giants had big gains with Exxon Mobil Corporation (NYSE: XOM) up 1.07%, Chevron Corporation (NYSE: CVX) gaining 0.6%, and Massey Energy Company (NYSE: MEE) rising 6.09%.
Energy stocks rose on a weaker U.S. dollar, but another blue chip, General Electric Company (NYSE: GE), gained 2.4% after it said that it may not increase its $1.2 billion bid for Wellstream Holdings after that company turned down an offer from the big conglomerate.
American Superconductor Corporation (NASDAQ: AMSC) jumped 5.8% after it said it received “the world’s largest order” for its high-temperature superconductor wire, to be used in creating power cables for utilities. And Verizon Communications Inc. (NYSE: VZ) was reported to be offering the new Apple Inc. (NASDAQ: AAPL) iPhone early next year. VZ rose 0.84% and AAPL was up 0.09%.
The dollar continued lower versus a number of other currencies. And U.S. Treasurys were so strong that virtually every maturity set new record lows.
At the close, the Dow Jones Industrial Average was up 23 points to 10,968, the S&P 500 fell a point to 1,160, and the Nasdaq lost 19 points at 2,380.
The NYSE traded 979 million shares with decliners slightly ahead of advancers. The Nasdaq crossed 574 million shares, but decliners led by 1.4-to-1.
Crude oil for November delivery rose 41 cents to $83.23 a barrel, which is another five-month high following a report that showed a drop in U.S. fuel supplies. The Energy Select Sector SPDR (NYSE: XLE) gained 51 cents, closing at $57.93.
December gold rose $7.40 to $1,347.70 an ounce on concerns over destabilizing currencies resulting from a rush by the world’s central banks for more monetary easing. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 3.91? points to 206.79.
What the Markets Are Saying
The Dow managed to register a gain yesterday with two-thirds of its stocks moving ahead despite a lack of follow-through in the broad market. Why? Well, it’s hard to fight the Fed expansion policy, so when the big dealers see a spread advantage between quality common stocks and bonds, you can bet that they will move in that direction. Thus, they jumped into the blue-chip, dividend-weighted stocks of the Dow 30 while the other indices had a minus day.
And so, “what is, is,” and the best course for investors is to jump aboard what the big guys are buying and enjoy the ride. There is another reason to hop onto the chippies and that is their price stability versus the higher volatility, lower quality, high price/earnings ratio stocks.
And since we’re talking about volatility I’ll caution once again that jumping aboard a train that’s almost reached its interim destination while paying full fare is not a very bright idea. Even though the market has broken from the summer trading range, that doesn’t mean that it will make an immediate and huge move higher. If we are entering the second phase of a three-phase bull market, this could be a tedious run with many stops and reversals in between.
Investors should study not only the charts of the major indices, and highlight the support and resistance zones, but they should do the same for each stock on their buy list. This is especially true of traders who are looking for a quick gain. Buying on support lines is buying low and selling on resistance lines is selling high. Many who are new to the game get caught up in the emotion of the moment and despite my warnings do exactly the opposite. They buy high, forget to place stop-loss orders, and find themselves with a steep loss while others are cashing in their profits and driving their new holding lower.
Here is a summary of the closest support and resistance lines for the major indices:
- Dow: 10,700 to 10,953
- S&P 500: 1,130 to 1,174
- Nasdaq: 2,300 to 2,425
Studying them, as well as the next zones of resistance and support, will prepare you for a stop-and-go market. There will be many stops and a few reversals before this local train reaches a station where we can get aboard the express that represents the third and final phase of the bull market.
Get the name of one stock you should buy right now.
Today’s Trading Landscape
Earnings to be reported before the opening include: International Speedway and PepsiCo.
Earnings to be reported after the close include: Alcoa, AngioDynamics, Micron and Nu Horizons Electronic.
Economic reports due: chain store sales, Monster Employment Index, jobless claims (the consensus expects 450,000), EIA natural gas report, consumer credit (the consensus expects -$4 billion), 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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