Even though investors feared the worst for Apple (NASDAQ: AAPL) and its CEO Steve Jobs and banks were lower throughout the day, the major indices again scored new 2-and-a-half-year highs. 

But bank stocks fell after Citigroup (NYSE: C) missed analysts’ forecasts and fell 6.4%. Bank of America (NYSE: BAC) was off 1.6%, and Morgan Stanley (NYSE: MS) was down 0.8%. The financial sector was the worst performing sector in the S&P 500, falling 0.8%.

The Dow industrials gained on the advances of Boeing (NYSE: BA), up 3.43%, and Caterpillar (NYSE: CAT), up 2.84%. But tech giant IBM (NYSE: IBM) led the Dow and gained 3.2%.  The worst performer of the Dow was Verizon Communications (NYSE: VZ), which lost 2.65%.

Apple fell 2.25% on concerns over the health of Steve Jobs. But after the market closed Apple reported solid earnings, which smashed analysts’ forecasts and the stock ended up 1.28% in after-hours trading.

In economic news, the Empire State manufacturing survey rose to 11.9 for January. Economists expected 12. The National Association of Home Builders index was flat in January. Foreign investment in China rose 17% last year passing the $100 billion mark for the first time at $105.74 billion.

The benchmark 10-year Treasury note fell 0.218%, bringing its yield to 3.37%. The euro rose to $1.3388 from $1.3284 on Monday.

At the close, the Dow Jones Industrial Average rose 51 points to 11,838, the S&P 500 gained 2 points at 1,295, and the Nasdaq rose 11 points to 2,766. The NYSE traded over 1.2 billion shares with advancers over decliners by 1.27-to-1. The Nasdaq traded 554 million shares. Decliners were slightly ahead of advancers on Nasdaq.

Crude oil for February delivery fell 16 cents to $91.38 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) rose 44 cents to $71.09. Gold ended a three-day losing streak by gaining $7.70 on the February contract to close at $1,368.20 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 208.37, up 2.65 points.

What the Markets Are Saying

As we approach the last part of January 2011, I’ve been reflecting on last year’s start — how we shot out of the box only to have stocks reverse from the Jan. 19 high. That sell-off resulted in a 9.5% correction. Will it happen again this year? 

Here are comments by Raymond James analyst Jeff Saut, who has been reflecting on the same event:

He is correct when he says, “not getting caught up in the excitements and depressions is key in this business.” And that’s why we must keep control of our emotions even when all of those around us are losing control of theirs. And now the public is losing their sense of proportion as they drive stocks higher.

We will certainly have corrections and the current round of buying will likely end soon, because statistically, the chances of another run like the recent run that began in November are slim. With so many bearish divergences and so many stocks at over 20% above their 200-day moving averages, this can’t last much longer. Even the Nasdaq 100 index is at 16.8% above its 200-day moving average. 

But despite that, I, like Saut, am not bearish, but cautious. Longer term, I am very bullish as you have noted from the recent annual targets that I’ve calculated. So why the bullish long-term perspective?

Again, thanks to Saut for highlighting the brainy folks at GaveKal who observe: “Tech PEs are at a discount to the five-year average PE across the board — whether software, hardware, services, semiconductors, etc. Tech is also trading at a discount to the broad market despite strong cash management and profitability ratios.” They also point out that tech PEs are at a discount to the five-year average PE of the group and a discount to the broad market.

This is the fundamental reason that I’m very bullish on the Nasdaq and the tech stocks. And here is the technical reason: Like the other indices, the Nasdaq has formed a head-and-shoulders bottom with a low on July 1, at 2,061, and a breakout from a neckline at 2,541. Add the difference of the two to the neckline to get 3,021 for an initial mid-year target.

But that calculation is just the beginning since it assumes that current p/e ratios will not expand. The current p/e of the S&P 500, according to S&P, is at 14.6 — hardly overvalued by historical standards. And technology, the heart of Nasdaq, is only at about 17 times earnings — again, historically low. In January 2000, it was over 65 and ran close to over 100 at the market top.

Conclusion: With such an historically low p/e for tech, there is a reasonable chance of a p/e expansion in tech and, thus, the Nasdaq this year. I think that it can and here is the calculation:

For that we must look at a huge head-and-shoulder bottom — go back to the March 9, 2009, closing low at 1,269, the second of a double-bottom (head) with the left shoulder at 2,550 in May 2008. The right shoulder completes a neckline made on April 23, 2010, at the closing high of 2,530. The difference between the bottom and neckline is 1,261 added to 2,530 = 3,791. But a Fibonacci count of the great bear market of March 2000 to November 2002 yields a total recovery to 3,575 (61.8%) to 3,764 (66.6%). I’m comfortable with 3,700 plus/minus 50 points.

Like all calculations of this nature, it is not so much the target, but the time that it takes to reach that target. And that is the great imponderable for which I have no answer. Hopefully it will be this year.

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.