A strong close on Wednesday carried over to the opening on Thursday, but it was short-lived, and by 10:15, the market was down almost 50 points. Then crude oil futures rallied on a positive report by Goldman Sachs (GS), and buyers moved in on the broad front with steady buying throughout the remainder of the session.
The financial sector was strong, with KeyCorp (KEY) up almost 20% on an upgrade by RBC Capital Markets. RBC also upgraded the banking sector to “overweight,” and said it believes the broader financial crisis has ended.
At the close, the Dow Jones Industrial Average (DJI) had gained 75 points, ending at 8,750, the S&P 500 (SPX) was up 11 to 942, and Nasdaq (NASD) gained 24 points to close at 1,850. The NYSE traded 1.4 billion shares, with advancers over decliners by almost 4-to-1. On Nasdaq, volume totaled 776 million shares, and advancers led by a ratio of more than 2-to-1.
July crude oil rose $2.69 to $68.81 a barrel following the Goldman Sachs forecast of higher prices for crude oil. The Energy Select Sector SPDR (XLE) rose to $52.54, up $1.16. And August gold settled at $982.30, up $16.70 an ounce, as inflation fears continued to dominate.
Initial jobless claims totaled 621,000, which was in line with most forecasts, but continuing claims fell to 6.74 million, and that was below expectations. This sets the stage for the important non-farm jobs data that will be reported this morning.
What the Markets Are Saying
Yesterday again proved the strength of the market, as it rallied following what appeared to be a turn away from the resistance at the 945 area. But the going is getting tougher ever since prices rose to 930 on May 8, and the broad market has been slugging away against steady selling ever since.
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Nevertheless, our internal indicators are strong. Momentum is still positive; the Moving Average Convergence/Divergence (MACD) is again picking up steam, with a new buy signal on Monday; and the slow stochastic moved higher following a buy signal on May 28.
Sentiment has been fluctuating with the American Association of Individual Investors (AAII) numbers now showing more bulls than bears (47.56% vs. 36.59%) following several weeks on the bearish side.
And advisors’ sentiment from Investors Intelligence (II) indicates that the advisors are moving to the buy side. Advisors bullish numbers rose to 42.5% from 40.9% last week. The difference between bulls and bears is at 17.2% from 12.2% just a week ago, and II considers 20% to be in the danger area.
But the CBOE Volatility Index (VIX) has been falling steadily, and is now at 30.18. That tells us that even though we could expect minor pullbacks, the longer-term trend has turned bullish.
However, I’ll feel a lot more comfortable about the overall change to a bull market when the S&P 500 crosses its 210-day exponential moving average and holds it for at least three days. This week it touched that important line at 952.01 and turned down from it.
Today’s Trading Landscape
Earnings to be reported include: Agilysys (AGYS), American Woodmark Corp. (AMWD), Oil-Dri Corp. of America (ODC) and TOP Ships (TOPS).
Economic reports due: May non-farm payrolls (the consensus expects -525,000), May unemployment rate (the consensus expects 9.2%), and April consumer credit (the consensus expects -$7.3 billion).
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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 his most recent market outlooks.
