Stocks opened higher yesterday, as the focus turned from the tech and small caps to the blue chips. The early strength in U.S. stocks was due to China’s decision to hold interest rates at current levels despite a better-than-expected Consumer Price Index (CPI) number.

The Dow Jones Industrial Average showed strength for most of the session with steady buying until an hour before the close when it gave up much of its advance. It finally settled with a gain of 0.2%, but the Nasdaq fell 0.48% (its first loss in nine sessions), and the S&P 500 managed a slight gain. 

The Dow was led by Caterpillar Inc. (NYSE: CAT), up 1.9%, and Chevron Corporation (NYSE: CVX), up 1.5%, the latter the result of a generally strong energy market. As a group, energy stocks outperformed for the entire session, helped by a weaker U.S. dollar. The group ended up 0.8% for the day. Cabot Oil & Gas Corporation (NYSE: COG) rose 4.5%, National-Oilwell Varco, Inc. (NYSE: NOV) gained 2.12%, Baker Hughes Incorporated (NYSE: BHI) rose 2.1%, Apache Corporation (NYSE: APA) gained 1.64%, and Occidental Petroleum Corporation (NYSE: OCY) rose 0.9%.

Materials stocks also benefited from the lower dollar with gains in AK Steel Holding Corporation (NYSE: AKS), up 2.61%, Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), up 2.36%, and Cliffs Natural Resources Inc. (NYSE: CLF), up 1.72%.

In corporate news, Dell Inc. (NASDAQ: DELL) agreed to buy Compellent Technologies, Inc. (NYSE: CML) for $27.75 a share. Thermo Fisher Scientific Inc. (NYSE: TMO) will buy Dionex Corporation (NASDAQ: DNEX) for $2.1 billion. And Huntington Bancshares Incorporated (NASDAQ: HBAN) plans to offer $920 million in common stock and an additional $300 million in debt to help repay the $1.4 billion it received from TARP to the government.

Treasurys rebounded with the 10-year note up 0.28% to yield 3.282%. The euro rose to $1.3392 up from $1.3228 on Friday.

At the close, the Dow rose 18 points to 11,429, the S&P 500 was flat at 1,240, and the Nasdaq fell 13 points to 2,625. The NYSE traded 963 million shares with advancers slightly ahead of decliners, while on Nasdaq decliners were ahead by 1.5-to-1 on volume of 476 million shares.

Crude oil for January settlement rose 82 cents to $88.61 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) jumped 56 cents to $66.46. February gold rose $13.10 to $1,398 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 225.78, up 2.33 points.

What the Markets Are Saying

Despite the number of bearish divergences, according to Mark Arbeter of S&P, the S&P 500 and Nasdaq made new two-year highs, confirming the positive direction of a long-term bull market. 

But another failure of the Dow Industrials to poke through the Nov. 5 high at 11,506 is of near-term concern since the transportation index crushed its high seven sessions ago. The industrials missed it yesterday by 26 points after turning away from an intraday high of 11,480. And adding to technicians’ discomfort, the Dow Transportation Index fell 45 points (-0.88%) yesterday, amid a sliding momentum number and a topping stochastic.

The Nasdaq finally had a minus day following eight successive advances, so yesterday’s pullback was long overdue. But recently, one-day reversals have often turned into retracements that found support at the most recent breakout points. For the S&P 500, that breakout is at 1,227, and for the Nasdaq it is 2,592. They are the closest meaningful support lines for each index.

Also noteworthy is last evening’s procedural passage in the Senate of the Obama tax plan by a margin of 83-to-15. With the market’s intense orientation to headline news, and absent any other negatives, today’s reaction to the recent vote should result in a rally. But the question is, will it stick? 

If a rally holds, there is a strong likelihood that the industrials will break out. But if it fails, then traders may consider the buy point at $40 on Monday’s Trade of the Day for Direxion Daily Technology Bull 3X Shares (NYSE: TYH) to be a gift-in-waiting.

And or a stock that should be a holiday winner, see today’s 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.