Stocks ran to new highs for the year yesterday, but then, in a change of pattern, instead of rallying in the last half hour, the session closed with stocks heading lower. The late selling was attributed to weakness in consumer stocks, which fell amid concern that oil prices closed at a seven-month high.
The advancing stocks were mostly confined to the utility sector, which gained 2%, and energy stocks, which gained 1.8%. Crude oil finished at a new high on an improved 2009 oil demand forecast from the International Energy Agency.
Technology stocks continued to attract buyers, sending Nasdaq (NASD) to a new high. The rally there was attributed to a strong day for Dell (DELL), following a late announcement on Wednesday that the computer maker is interested in “cranking up its mergers and acquisitions engine.”
The U.S. dollar was again weak after the auction of 30-year Treasury bonds brought a yield of 4.72%, and the 10-year note traded higher with a yield of 3.9%.
The Advance Retail Sales Report showed an increase of 0.5% — its first increase in three months — but it had little impact on stock trading.
At the close, the Dow Jones Industrial Average (DJI) was up 32 points to 8,771, the S&P 500 (SPX) gained 6 points to 945, and Nasdaq gained 9 to 1,862. The NYSE traded 1.2 billion shares, with advancers ahead of decliners by 9-to-5. On Nasdaq, advancers were ahead by almost 2-to-1 on volume of 734 million shares.
July crude oil rose $1.35 to $72.68 a barrel, the highest close since Oct. 20, on an increased estimate of future demand. The Energy Select Sector SPDR (XLE) gained $1.06 to close at $54.03. August gold gained $7.30 ending the day at $962. The PHLX Gold/Silver Index (XAU) fell 42 cents to $149.68.
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What the Markets Are Saying
Just as it looked like the S&P 500 was finally going to close over the stubborn 945 line, sellers emerged and drove it back. But it is pounding against the barrier, and yesterday’s intraday high at 956.23 will no doubt encourage the bulls.
The bulls should also find encouragement from the technology sector’s revival after lagging just a bit earlier this week.
It was the techs that drove Nasdaq to another new high yesterday, but that new high was not confirmed by the small-cap Russell 2000 Index (RUT), and that could be a problem.
In fact, Nasdaq was the only major index to close at a new high, so the failure of the other indices could mean that a huge non-confirmation of the breakout by the Nasdaq is under way.
However, it is the failure of the small caps that is most troubling. They are expected to lead the market in a genuine turnaround, because they are thought to be more tied to the economy and more volatile.
Perhaps today we’ll see some follow-through from the Russell and other indices, too. But after yesterday’s new intraday high on the S&P 500, then the sell-off on the close, coupled with a lagging Russell, the focus will be on the bulls’ ability to close out the week on a high note.
Today’s Trading Landscape
Earnings to be reported: Mesabi Trust (MSB).
Economic reports due: May import prices (the consensus expects +1.5%) and Mid-June Reuters/University ofMichigan Consumer Sentiment Index (the consensus expects 69.8).
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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.
