The market rallied again yesterday, following reports that the European Central Bank (ECB) was actively buying bonds issued by EU members. It was the second consecutive day of triple-digit gains and marks the best two-day performance for the market since July.
In addition to better news from Europe, better-than-expected home sales caused homebuilder stocks to soar 4.7%. The National Association of Realtors pending home sales index jumped 10.4% to 69.01. And several major retail stores including Abercrombie & Fitch Co. (NYSE: ANF), J.C. Penney Company, Inc. (NYSE: JCP), and Costco Wholesale Corporation (NASDAQ: COST), rose sharply on better-than-expected sales numbers.
Financial stocks were also strong yesterday, rising 2.6%. Banks were the strongest sector in the group with KBW Bank Index up 3.9% following an upgrade of Bank of America Corporation (NYSE: BAC) and JPMorgan Chase & Co. (NYSE: JPM) by Goldman Sachs Group, Inc. (NYSE: GS).
The demand for Treasurys fell with the yield on the 10-year note climbing to 3%. The euro rose to $1.3220 from $1.3141 late on Wednesday.
At the close, the Dow Jones Industrial Average rose 106 points to 11,362, the S&P 500 gained 15 points at 1,222, and the Nasdaq gained 30 points at 2,579. The NYSE traded 1.1 billion shares, and the Nasdaq crossed 548 million shares. On both exchanges, advancers exceeded decliners by about 2-to-1.
Crude oil for January delivery rose $1.25 to $88 a barrel — a two-year high. The Energy Select Sector SPDR (NYSE: XLE) closed at $65.53, up 96 cents. February gold rose $1.30 to settle at $1,390.60 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 3.3 points to 220.83.
What the Markets Are Saying
The bulls finally crushed the S&P 500 resistance line at 1,210 yesterday, with a close that was 11 points higher than that important number and just 4 points off of November’s high water mark. So the only remaining barrier for the indices is their November highs, which for is 11,506 for the Dow and 2,593 for the Nasdaq.
This week’s sentiment numbers are curious in that the bulls are still very much in the majority in both the American Association of Individual Investors’ (AAII) Sentiment Survey and the Investors Intelligence (II) Advisors Sentiment review. AAII reports that 49.66% are bullish, up from 47.4% last week, and 40% the week before. And II says that although the bullish number of advisors has fallen, it is still at 55.4%, which is a very high bullish number. The spread between bulls and bears is 33.6%. That is high, but in October 2007 at the market’s all-time high, the spread was 42.4%.
Our internal indicators are mixed with MACD on the verge of a buy signal, the stochastic neutral, and momentum slightly overbought.
Well, the numbers are what they are, and they may be on target. In a stock market that is balanced with a normal makeup of public, institutional and trading members, I’d be cautioning that the sentiment figures are telling us to slow down. But the makeup of this market is abnormal with Fed and Treasury money skewing the results. So whether I or Joe Granville think that the market is overbought is irrelevant as long as stock prices keep advancing.
By the way, Joe is now predicting a major reversal and crash. On Nov. 5, Joe said, “My climax indicator recorded a vertical fall from +24 to -10 on what looked like its final advance. I said (then) that the loss of upside momentum has written the final chapter.” He went on to say that this top “stands alone as possibly the most significant in all of history.”
Joe has called many tops in the past and is a great technician and delightful speaker. I had Joe give a seminar to clients over 30 years ago, and folks still remind me of his pithy remarks. But for now the market has spoken, and it is telling us that the bulls have the ball and are well on their way to a score.
For one ETF to buy now, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
