Despite some last-minute profit-taking, stocks ended Thursday with impressive gains — spurred on by strong economic news from China, a seemingly successful meeting of the G-20, and an easing by the Financial Accounting Standards Board (FASB) of mark-to-market rules for banks.
As for the Group of 20 meeting in London, the Wall Street Journal had this to say, “The heads of the world’s leading economies concluded their summit with agreement on extra support for the International Monetary Fund, tighter global regulation of hedge funds, and widespread expressions of optimism that the worst of the economic downturn might be over.”
Gains in Europe and Asia were attributed to a report that China’s manufacturing sector was growing again. And in the United States, February factory orders climbed a more-than-expected 1.8% versus an expected gain of 1.5%.
The gains were made despite worse-than-expected weekly jobless claims. Initial claims jumped 12,000 to 669,000 versus an expected total of 650,000.
At the close the Dow Jones Industrial Average (DJI) was up 216 points to 7,978, the S&P 500 (SPX) gained 23 points at 834, and the Nasdaq (NASD) rose 51 points to close at 1,603.
The New York Stock Exchange traded 1.8 billion shares, and the Nasdaq traded 954 million shares. Advancers were ahead of decliners on the New York by 9-to-1 and on the Nasdaq by 4-to-1.
Crude oil for May delivery rose $4.25 to $52.64 a barrel for the biggest one-day gain in almost three weeks due to optimism that the global recession may be easing. The Amex Energy SPDR (XLE) rose $1.78 to $45.14.
Gold fell as sellers placed proceeds into riskier assets. The April contract closed at $907.40 an ounce, down $18.70, and the PHLX Gold/Silver Index (XAU) fell $6.18 to $134.41.
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What the Markets Are Saying
The key to a successful major market reversal is volume and thus far, despite the 23% run-up on the S&P 500 (SPX), volume has been relatively light. Even yesterday’s Dow (DJI) advance of 216 points, which was sparked by the hype of the G-20 “successes” and the FASB’s easing of bank’s mark-to-market accounting rules, resulted in just 1.8 billion shares traded on the NYSE and 954 million on the Nasdaq (NASD).
So, despite the talk of “trillions of dollars on the sidelines,” the volume has not kept pace with the advance.
Conclusion: Unless volume builds quickly as prices move into the major five-month resistance zone, the rally will fail and either the bear market will resume or we will spend a very long time in a broad trading zone of S&P 667 to 900.
Today’s Trading Landscape
Earnings to be reported include: AZZ (AZZ), Blyth (BTH), Geoeye (GEOY) and ShengdaTech (SDTH).
The following economic reports are due today: March non-farm payrolls (the consensus expects a 671,000 drop), March unemployment rate (the consensus expects 8.5%), and the March Institute for Supply Management (ISM) Non-Manufacturing Index (the consensus expects 42).
After the close Thursday Research In Motion (RIMM) reported Q4 revenues of $3.46 billion versus an expected $3.4 billion and earnings of 90 cents a share versus an expected 83 cents a share.
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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.
