A broader-based stock market rally Monday, spurred on by positive economic reports, turned the S&P 500 (SPX) positive for the year. Pending home sales for March jumped 3.2% from February, and construction spending which was expected to fall 1.6% increased 0.3% for March over February.
Financial stocks led the rally despite what seemed to be unfavorable news for several of its key members. During the weekend it was revealed by The Wall Street Journal that both Citigroup (C) and Bank of America (BAC) may need up to $10 billion more in capital.
And then yesterday, an Associated Press report said that regulators told Wells Fargo (WFC) to “shore up its balance sheet” since the bank would have a tough time surviving a deeper recession. Also, despite a supporting statement from Warren Buffett, U.S. Bancorp (USB) was put on negative watch by Standard & Poor’s.
The swine flu outbreak was downplayed by several analysts, and the airline stocks rallied on the hopes that travel wouldn’t be impacted this summer. But the World Health Organization moved closer to declaring a global pandemic despite the mild nature of the disease outside of Mexico.
All 10 major sectors of the S&P 500 (SPX) finished with gains and just two of the Dow-30 (DJI) fell slightly. At the close, the Dow Jones Industrial Average was up 214 points to 8,427, the S&P 500 gained 30 to 907, and the Nasdaq (NASD) rose 44, closing at 1,764.
The NYSE traded 1.7 billion shares with advancers leading decliners by over 6-to-1. On the Nasdaq, advancers led by 7-to-2 and volume totaled 815 million shares.
The June crude oil contract gained $1.27 to $54.47 a barrel on upbeat homes data and a positive economic report from China. The next target for June crude oil is the double-top at $56 and then the tops at just under $60. The Amex Energy SPDR (XLE) gained $1.89 to close at $49.15.
The June gold contract was up $14, ending the day at $902.20 an ounce, and the PHLX Gold/Silver Index (XAU) gained $7.45 at $127.89.
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What the Markets Are Saying
With a rush of buying in virtually every sector of the S&P 500 (SPX), the major indices broke through recent highs. Resistance at Dow (DJI) 8,400, S&P 900, and the 200-day moving average at the Nasdaq (NASD) 1,754 all gave way.
But one of the most telling signals to my method of technical analysis occurred with the breaking of Thursday’s high which turned our internal indicator on the S&P 500 to a strong buy signal. And the Moving Average Convergence/Divergence (MACD) indicator, along with the slow stochastic, triggered buys, too.
One of my favorite indices, the NYSE Composite (NYA), broke from a cup-and-handle formation — the O’Neil bullish trigger — and is only 168 points from its January high, which, if exceeded, would turn the entire index bullish.
So, what to do now?
The intermediate- and short-term trends are bullish, but until the January highs of the major indices are taken out along with the 200-day moving average in two $of the three Dow averages (Industrials, Utilities, and Transportation) the bear will still be with us.
Now, the bear is injured, so it is wise to be careful since it is still likely that we will have at least one more downside correction before he disappears. Long-term investors should hold longs, tighten up stops, and prepare to accumulate cash for the next buying opportunity. Traders should jump into their highest volatility breakout candidates but with tight stops to prevent against a whiplash. The fun is just beginning.
Today’s Trading Landscape
Earnings to be reported include: Accuray, Airgas, Alcatel-Lucent, Allegheny Energy, Allied Healthcare, Allos Therapeutics, American Capital Ltd, American Medical Systems, American Water Works Co, Amtrust Financial Services, Answers Corp, APAC Customer Services, Approach Resources, Arch Chemicals, Archer Daniels Midland Co, Argo Group Int’l Holdings Ltd, ArvinMeritor, Ashford Hospitality Trust, Atlas Air, Atmel Corp, Automatic Data Processing and Avon Products.
Banco Itau Holding Financeira S.A., BIDZ.com, BigBand Networks, Bill Barrett Corp, Bio-Rad Laboratories, Boise, BRE Properties, Brookfield Asset Management, Cal Dive Int’l, Cambrex, Capital Senior Living, Capital Trust, Capitol Federal Financial, Catalyst Health Solutions, Cedar Fair LP, Cedar Shopping Centers, Celldex Therapeutics, Centex Corp, Cephalon, CEVA, Charles River Laboratories Int’l, Church & Dwight Co, Cimarex Energy Co, Cincinnati Bell, Clayton Williams Energy, Cogent, Cognizant Technology Solutions, Constellation Energy Group, Cousins Properties, CVS Caremark Corp and Cynosure.
Denbury Resources, Denny’s Corp, Dialysis Corp of America, DiamondRock Hospitality Co, Diebold, Dolan Media Co, Douglas Emmett, Duff & Phelps Corp, Duke Energy Corp, El Paso Electric, Electronic Arts, Emergency Medical Services Corp, Emerson Electric, ESCO Technologies and EXCO Resources.
Facet Biotech Corp, FairPoint Communications, Federal-Mogul Corp, FEI Co, First Mercury Financial Corp, FirstEnergy, Five Star Quality Care, Flagstone Reinsurance Holdings Ltd, Foundation Coal Holdings, FreightCar America, Fuel Tech, Fundtech Corp, Gaylord Entertainment Co, Genomic Health, Genpact Ltd, Getty Realty, Gladstone Capital Corp, Great Wolf Resorts and Guidance Software.
Hansen Medical, Harris, Harris Stratex Networks, Harte-Hanks, HCC Insurance Holdings, Headwaters, Health Net, Healthsouth, Helix Energy Solutions Group, Hewitt Associates, Hill Int’l, HLTH Corp, ICF Int’l, Iconix Brand Group, I-Flow, Impax Laboratories, InfoUSA, IntercontinentalExchange, IPG Photonics Corp, j2 Global Communications, Jack Henry & Assoc, Kenneth Cole, Kforce, Kinross Gold, Kraft Foods, Landauer, Las Vegas Sands Corp, Legg Mason, Liberty Global, Liberty Mutual Group, Lincoln National and Louisiana-Pacific Corp.
Macerich, Maguire Properties, Martin Marietta Materials, Marvel Entertainment, Masimo Corp, Maxwell Technologies, Metropolitan Health, Molson Coors Brewing Co, Monotype Imaging Holdings, Mueller Water Products, Nacco Industries, National Research Corp, NCI, Ness Technologies, Neurocrine Biosciences, Nordic American Tanker, NPS Pharmaceuticals and Otelco.
Parallel Petroleum Corp, Pegasystems, Penske Automotive Group, Perot Systems, PetroQuest Energy, Philippine Long Distance Tel Co, Pinnacle West Capital Corp, Pioneer Southwest Energy Partners LP, Pitney Bowes, PLX Technology, Poniard Pharmaceuticals, Precision Castparts, Progress Energy, Pulte Homes, Rackable Systms, Radian Group, Radvision, RCN Corp, Redwood Trust, RehabCare Group, Republic Airways Holdings, Resource Capital Corp, Riskmetrics Group and Ritchie Bros. Auctioneers.
Salix Pharmaceuticals, Sappi Ltd, Sauer-Danfoss, Sempra Energy, Shenandoah Telecommunications, Sirona Dental Systems, Skilled Healthcare Group, Sonus Networks, Spectra Energy, SPSS, Steinway Musical Instruments, Steven Madden, Stone Energy, SWS Group, TechTeam Global, Tenet Healthcare, Tesco, Teva Pharmaceutical, The Advisory Board Co, The Pantry, The Phoenix Companies, The St. Joe Co, TheStreet.com, TIM Participacoes S.A., TNS, TransDigm Group, Triple-S Management Corp and True Religion Apparel.
UBS, UDR, UIL Holdings Corp, Ultra Petroleum Corp, Unit Corp, United Online, Universal Technical Institute, Valeant Pharmaceuticals Int’l, ValueClick, Ventas, Vicor, Virgin Media, Volcano Corp, Vomado Realty Trust, W&T Offshore, Walt Disney, Westlake Chemical Corp, Westpac Banking Corp, Weyerhaeuser Co, Wisconsin Energy Corp, Wynn Resorts Ltd, XenoPort, Yamana Gold, Zebra Technologies, and ZymoGenetics.
Today’s economic reports include the International Council on Shopping Centers (ICSC) Chain Store Sales Index for May 2, Redbook Retail Sales Index for May 2, April Institute for Supply Management (ISM) Non-Manufacturing Index (the consensus expects 42), API Oil Industry Report for May 1, and ABC/Washington Post Consumer Confidence for May 2.
Late news: Fed Chairman Ben Bernanke will appear before Congress today. The Wall Street Journal reports that 10 of 19 banks undergoing stress tests plus “several regional banks” will need capital.
CVS Caremark (CVS) reported Q1 earnings as 55 cents versus an estimated 54 cents, Kraft’s (KFT) Q1 was 45 cents versus an expected 40 cents, and Duke Energy (DUK) saw 28 cents versus an estimated 32 cents.
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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.
