Even the report on Friday of a loss of almost 600,000 jobs in January didn’t stop the market from focusing on the stimulus package and the government’s plan to bail out the nation’s banks.
The stock market rallied from the opening to the closing bell, led by an 8.1% rise in the financial stocks, and that was helped mostly by a 14.3% run in the regional banks and a 15.4% advance by the S&P diversified financial sector. The Dow Jones Industrial Average (DJI) closed 2.7% higher for the day and had its first weekly gain in four weeks.
Bank of America (BAC) led the banks higher gaining 27% on Friday after its CEO said that it didn’t need any further government funding. But despite Friday’s big gain BAC was still off 6.8% for the week.
Other banks had a big day, including Citigroup (C), up 11%, and Wells Fargo (WFC), up 18%. And the ProShares Ultra Financials Exchange Traded Fund (UYG) gained 13%.
In addition to the higher-than-expected unemployment number, which left the unemployment rate at 7.6%, there were other negatives that investors chose to ignore.
Hartford Financial Services Group (HIG) cut its dividend late on Thursday by 84%, and the stock plummeted on Friday, down nearly 25%. And Standard & Poor’s said on Friday that it expects S&P 500 stock dividends to decline 13.3% in ’09 for the worst drop since 1942.
At the close, the Dow Jones Industrial Average (DJI) gained 218 points at 8,281, the S&P 500 (SPX) was up 23 to 869 and Nasdaq (NASD) rose 45 points to close at 1,592.
The New York Stock Exchange traded 1.6 billion shares, with advancers over decliners by 5-to-1, and on Nasdaq 926 million shares traded and advancers were ahead by 4-to-1.
For the week, the Dow advanced 3.5%, the S&P 500 was up 5.2% and the Nasdaq
gained 7.8%.
On Friday, the March crude oil contract fell $1, ending the day at $40.17 a barrel. The Amex Energy SPDR (XLE) closed at $49.47, up 90 cents.
Gold for February deliver closed higher on the increase in unemployment, closing at $913.90 an ounce, up 30 cents, and the PHLX Gold/Silver Index (XAU) rose $2.89 to $129.72.
What the Markets Are Saying
After almost four months of trading in a dominant sideways pattern (except for the bear trap of Nov. 20 and Nov. 21), the government now provides some hope of “stimulus,” which is just as important a new bank bailout plan. So, despite the fear readings from the public, more savvy investors with lots of cash appear ready to put some of that money to work.
On Friday I spent some time comparing the similarities of the 2002-2003 bottom to the current chart patterns of the major indices and the CBOE Volatility Index (VIX), concluding that it looks like the conditions are present to get a meaningful rally underway. If you agree that the market is poised for a move higher, the question is, “What sectors and stocks should I buy?”
Our friends at Dorsey Wright do a masterful job of tracking sector strength and these are the groups that they said are picking up strength: banks, building, finance, leisure, Wall Street, semiconductors, metals (non-ferrous) and (surprise) autos and auto parts.
The minimum targets for a rally are Dow (DJI) 9,000 to 9,650, and 920 to 1,010 on the S&P 500 (SPX).
But be careful, since the bear is yet alive and major commitments of institutional cash could still end as just a major rally in a bear market. No matter how strongly the conditions favor a rally you must always have an exit strategy, because if the administration stumbles on the way to getting its package enacted, a potential rally could turn into another leg down.
In fact, it was expected that the bank bailout plan would be introduced today. Instead Treasury Secretary Tim Geithner has put the announcement off until tomorrow and the rumor is that there will be a revamped plan that may include some sort of partnering with the private sector. And the stimulus package is getting close scrutiny from the Senate and its vote may be delayed until Tuesday.
But for now it is time to put some cash to work.
Today’s Trading Landscape
Earnings of note to be reported include: Albany Molecular Research, Alexandria Real Estate, Alico, American Financial Group, American Science and Engineering, Amtech Systems, Anglogold Ashanti Ltd, Arcadia Resources and Axis Capital Holdings.
Barclays PLC, Beazer Homes USA, Bechman Coulter, Boardwalk Pipeline Partners
LP, Brightpoint, Brooks Automation, Camden Property Trust, Charles River Laboratories Int’l, Chindex Int’l, CNA Financial Corp, Compass Minerals and Comstock Resources.
Diodes, Durect Corp, Ecopetrol SA, Energy Conversion Devices, Forward Air, Global Traffic Network, Hasbro, Haynes Int’l, Infinity Pharmaceuticals, InfoUSA, Innophos and International Assets Holding.
, K12, Kayne Anderson Energy Development Co, Ladish, Lincare Holdings, Lincoln National, Lions Gate Entertainment, Loews Corp, Mercury General, Motorcar Parts of America, Nuance Communications and NYSE Euronext.
Orix Corp, Parkway Properties, Peerless Manufacturing, Pharmaceutical Product Development, Powell Industries, Randgold Resources Ltd, Rohm and Haas Co, Telefonos De Mexico, The Advisory Board Company, The Principal Financial Group, Tier Technologies, Veeco Instruments, Vertex Pharmaceuticals, Vulcan Materials, W.R. Berkley, Wausau Paper Corp, and Whirlpool Corp.
There are no major economic reports due today.
Whirlpool (WHR) reported Q4 results of 60 cents versus an expected 78 cents. Barclays beat expectations and plans to restart dividends in later this year.
Get Sam Collins’ Daily Trader’s Alert e-mailed straight to your inbox each morning before the opening bell absolutely FREE!
In addition to getting instant access to his Daily Market Outlook, you’ll also receive, in the same e-mail, his Trade of the Day so you can start your day off right by positioning yourself for profits!
Click here today to sign up today for Sam’s FREE Daily Trader’s Alert!
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.
