Stocks started on the minus side Friday following a disappointing monthly report that showed non-farm payrolls falling by 85,000 where analysts had expected a flat reading. But a revision of the November numbers showed an increase of 4,000 jobs, and in the minds of buyers that seemed to offset the disappointing December report, especially since it marked the first payroll increase in two years.

However, it took the entire session to regain the losses and bring all of the major indices back to the plus column.

Financial stocks were early losers after Citigroup (C) cut earnings estimates for Goldman Sachs (GS) and several other investment banks. But technology stocks rallied after a dismal week of losses, and that helped the S&P 500 (SPX) to its fifth straight gain and boosted the Nasdaq (NASD), which was the best index performer of the day, up 0.74%.

At the close, the Dow Jones Industrial Average (DJI) was up 11.33 points to 10,618, the S&P 500 gained 3 points to 1,145, and the Nasdaq rose 17 points to 2,317. 

The NYSE traded 994 million shares with advancers ahead of decliners by about 9-to-5. The Nasdaq traded 613 million shares with advancers ahead by 8-to-5.

Crude oil for February delivery gained 9 cents to $82.75 a barrel, and the Energy Select Sector SPDR (XLE) closed at $60.30, up 39 cents.  

February gold gained $5.20 to $1,138.90, and the PHLX Gold/Silver Sector Index (XAU) rose $2.53 to $181.74.

What the Markets Are Saying

It may not have been the most spectacular start to the new year, but so far 2010 is a winner, and on Friday every major index closed at a new 12-month high. This has left some technicians scratching their heads in bewilderment since their internal indicators are overbought, the sentiment numbers tell us that the “dumb money” is buying, and some of the “smart money” (corporate insiders) is selling. 

On Thursday, I mentioned the rotation of sectors in the market and how, after a period of leadership in recent weeks, the technology stocks have not kept pace with other sectors. So, recognizing that the market has moved away from them, now could be a good time to put some money into tech. This is called “group rotation” and is a very important indicator of the market’s strength. 

Mark Arbeter of S&P picked up on group rotation this weekend, explaining that despite the overbought short-term indicators, the recent rotation of buyers into some of the sectors that failed to keep pace is indicative of a healthy market.

He points out that after the financial sector lagged the S&P for four months, it suddenly got a “jolt of electricity that propel[led] it higher.” He went on to say, “In the past four days, the financial SPDR has jumped 4.5% while the S&P Materials SPDR is up 4.4%.” He concludes, “The overriding theme here is that money is staying in the market, rotating from sector to sector, which we believe, as long as it lasts, is a very healthy condition.” 

To those who say that the market has gone straight up and needs a correction, he responds that the market has seen two corrections of more than 5%. There was the summer correction of 7% and one in October of 6%. The S&P SmallCap 600 Index (SML) pulled back 9% during those periods, and that’s why I highlighted the small caps as a buying opportunity in November. The small-cap index is now up almost 16% from its November low.

And so the bull market continues. If you are trading or even a longer-term investor, just make sure when you buy that you are not buying at the top of a sector move, but near the bottom of a bull channel. 

Currently I believe that with the retracement of gold and other commodity-based stocks, they provide a fresh opportunity that, in part, will advance because of group rotation.

Today’s Trading Landscape

Earnings to be reported today: Allscripts (MDRX), Helen of Troy (HELE), Alcoa (AA) and WD-40 Company (WDFC).

There are no significant economic reports due today.  

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