Stocks jumped Monday on the news of a government rescue plan for Citigroup (C), the announcement of NY Fed President Timothy Geithner as Treasury secretary, and the introduction of a “big” Obama economic stimulus package.
The S&P 500 (SPX) gained almost 6.5% in one day and is up more than 16% from Friday’s reversal lows. The strongest groups of the S&P 500 were financials, telecommunications and consumer discretionary.
The Dow Jones Industrial Average (DJI) gained 4.9%, led by Citigroup, which gained almost 58%. And the other Dow financials did well, too, with American Express (AXP) up 13.3%, Bank of America (BAC) up 27.2%, and JPMorgan up 21.4%.
At the close, the Dow Jones Industrial Average (DJI) was up 397 points to 8,443, the S&P 500 (SPX) gained 52 points to finish at 852 and the Nasdaq (NASD) rose 88 points, closing at 1,472.
The New York Stock Exchange traded more than 2 billion shares, with advancers ahead of decliners by 9-to-1. The Nasdaq traded 1.1 billion shares, with advancers ahead by 3-to-1.
The National Association of Realtors said that the resale of single-family residences fell 3.1% in October to 4.98 million — just below the consensus estimate of 5 million.
Crude Oil for January delivery closed at $54.50 a barrel, up $4.57, and the Amex Energy SPDR (XLE) gained $3.21 at $47.63.
The December gold contract continued its rally on the expectation that the new government financial plans will rekindle inflation. The contract rose $27.70, closing at $819.50, and the PHLX Gold/Silver Index (XAU) rose $6.02 to close at $94.82.
What the Markets Are Saying
Bear-market rallies are usually explosive and sometimes based on the flimsiest of excuses. Most often the rally is due to nothing more than stocks being so oversold that even the slightest catalyst can propel them up. Then, like a compressed spring, they appear to explode with energy.
Friday’s energetic buying continued into yesterday, qualifying as an explosive rally, but it was based upon the most flimsy news — the naming of a new Treasury Secretary who won’t take office for two months and the bailing out of a bank that was just too big to allow to fail. The rally was led by the most oversold group, the financial stocks, following new lows on Friday that, in some cases, took bank stocks to price levels of 15 years ago.
Last week’s sentiment indicators show an extremely fearful public. The American Association of Individual Investors Sentiment Survey showed a sharp bounce in the number of members bearish, 57.14 up from 42.50. That’s the highest fear reading of that service since the record high of 60.84 on Oct. 9.
Along with our internal readings, it gives a solid technical reason for the rally but at the same time tells us that despite its exuberance it will probably not last much longer. And, curiously, on Oct. 9, the Dow (DJI) closed at 8,579, which is within the range of yesterday’s trading, and following that reading, stocks rose sharply to more than Dow 9,900 and then quickly collapsed.
So, we’ve had the rally, now the market will likely turn back to its major trend, which is down. It may be again time to review your favorite contra-ETF in preparation for another test of the markets lows.
Today’s Trading Landscape
Earnings to be reported include: Allied Healthcare (AHCI), American Eagle Outfitters (AEO), American Woodmark Corp (AMWD), Bank of Montreal (BMO), Blue Coat Systems (BCSI), Borders Group (BGP), Central Garden & Pet Co (CENT), Charming Shoppes (CHRS), Chico’s FAS (CHS) and Coldwater Creek (CWTR).
D.R. Horton (DHI), Daktronics (DAKT), dELiA*s (DLIA), Dollar Tree Stores (DLTR), DSW Inc. (DSW), Eaton Vance Corp (EV), Elbit Systems (ESLT), Fleetwood Enterprises (FLE) and Genesco (GCO).
Hillenbrand (HI), Hormel Foods Corp (HRL), J. Crew Group (JCG), Netezza Corp (NZ), QAD Inc. (QADI), SeaChange Int’l (SEAC), Talbots (TLB), TIVO (TIVO), TVI Corp (TVIN), United Natural Foods (UNFI), Verigy Ltd (VRGY), Vimpel Communications (VIMP), Warner Music Group (WMG), Xinyuan Real Estate Co Ltd (XIN) and Zale Corp (ZLC).
Several economic reports are due today: International Council of Shopping Centers (ICSC) Chain Store Sales Index for Nov. 22, third-quarter preliminary GDP, third-quarter preliminary corporate profits, Redbook Retail Sales Index for Nov. 22, September S&P/Case Shiller Home Price Index, November Conference Board Consumer Confidence (the consensus expects 38.5), November Richmond Fed Manufacturing Survey, November Dallas Fed Manufacturing Production Index, and ABC/Washington Post Consumer Confidence for Nov. 22.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
