The stock market rallied for the third-straight trading day Thursday, but most surprising was the group that led the rally — the financials.
Spurred on by the first positive number from the housing industry in months, the financials were led by American Express (AXP), up 9.7% even after it reported a 79% drop in Q4 earnings on Monday. Bank of America (BAC) and Citigroup (C) rose 8.3% and 6.6%.
On Monday, the National Association of Realtors said that there had been a 6.6% rise in existing-home sales in December. Despite some analysts attributing the pop in sales to the sale of foreclosed properties, the financials seemed to jump at any hint of good news in the housing sector, which has been focused on as the cause of that area’s troubles.
However, in more housing news yesterday, the Case/Shiller report indicated that there was an 18% decline in home prices for the 12 months ending in November.
At the close, the Dow Jones Industrial Average (DJI) gained 59 points at 8,175, the S&P 500 (SPX) was up nine points to 846, and the Nasdaq (NASD) gained 15 points, closing at 1,505.
The New York Stock Exchange traded 1.17 billion shares, with advancers ahead by 5-to-4. On the Nasdaq, 650 million shares traded, with advancers and decliners close to even.
The March crude oil contract fell $4.15 to $41.58 a barrel, and the Amex Energy SPDR (XLE) gained 8 cents closing at $48.01.
Gold also turned down, with the February contract closing at $899.50, off $9.30. The PHLX Gold/Silver Index (XAU) closed at $122.43, down $2.17 and falling after a sell signal on Monday from our internal indicator, the Collins-Bollinger Reversal (CBR). The next support for the XAU is at $117 and then $105.
What the Markets Are Saying
The major market indices indicate that a short-term rally is due.
Our internal indicators, chiefly the Moving Average Convergence/Divergence (MACD) and momentum, are oversold and the stochastic has issued a short-term buy signal. Additionally the sentiment indicators, chiefly Investors Intelligence, the American Association of Individual Investors’ (AAII) sentiment survey, which has been very bearish for three weeks, and the CBOE Volatility Index (VIX), tell us that the public is bearish and insiders are bullish also.
Even though the trading targets could be as close as Dow (DJI) 8,500, they could also extend to the top of the three-month trading range at Dow 9,300. This may seem like just more of the same type of sideways trading that we’ve become used to, but it could also mean that a major market base has formed.
If that’s the case, the tops at Dow 9,600 could be penetrated and a major rally with an objective of 10,500 (the 200-day moving average) is possible.
The important message is this: A near-term penetration of the market low is now unlikely. It is time to begin rebuilding long-term portfolios with the highest-quality, most capable long-term equities.
Today’s Trading Landscape
Earnings of note to be reported: Affymetrix, Airgas, AirTran Holdings, Align Technology, Alliance Resource Partners, LP, Ameriprise Frinancial, Astoria Financial Corp, AT&T, Avocent Corp, Baker Hughes, Banner Corp, Boston Properties and Boston Scientific Corp.
Cabot, CACI Int’l, Canon, Cardinal Financial, Cavium Networks, Celestica, Cirrus Logic, Citrix Systems, Compuware Corp, ConocoPhillips, Covance, CTS Corp, D&B, Dover Corp, DST Systems, Duke Realty Corp, Empresa Nacional de Electricidad SA-Endesa Chile, Energen and Enersis SA ADS.
Franklin Resources, General Dynamics, Green Mountain Coffee Roasters, Hanesbrands, Hess Corp, Intersil Corp, Kirby, Lam Research, Landstar System, Legg Mason, LSI Corp, Manitowoc, Marine Products Corp, McCormick & Co, Meritage Homes Corp, Methanex Corp and Murphy Oil Corp.
NBTY, Network Equipment Technologies, Novartis AG, O-I, Open Text, Praxair, PSS World Medical, Qualcomm, Rollins, RPC, Ryland Group, SAP AG, Southern Co, Stanley Furniture, Starbucks, StellarOne Corp, Sunoco Logistics Partners LP, Susquehanna Bancshares, Sybase and Symantec.
Tata Communications Ltd, Teradyne, Tetra Tech, Texas Capital Bancshares, The Allstate Corp, The Boeing Co, The New York Times Co, The Stanley Works, Tidewater, Tompkins Financial Corp, Tractor Supply Co and Tyco Electronics.
UGI, UMB Financial, USG, Virtusa Corp, Washington Banking, Washington Trust Bancorp, WellPoint, Wells Fargo & Co, Western Digital Corp, Whitney Holding Corp, Wintrust Financial Corp, and World Acceptance Corp.
In terms of economic reports, we expect the MBA Mortgage Application Refinance Index for Jan. 23, U.S. Energy Dept. Oil Inventories, and the FOMC Interest Rate Decision.
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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.
