Stocks sprang from the opening yesterday and by the end of the day had registered another triple-digit gain and a 15-month high on the Dow Jones Industrial Average (DJI).  The reason for the broad move higher? Two words: health care. Since the national health care bill appeared in jeopardy as the Senate seat in Massachusetts looked like it might go to a Republican — and then did.

Earnings were a secondary reason for yesterday’s buying. There was little news on the economic or international fronts to account for the gain.

Citigroup (C) reported Q4 earnings that were in-line with expectations, though at a loss of 33 cents a share. IBM (IBM) hit a new 52-week high in anticipation of earnings, but it was the 2% jump in health care stocks that led the way to new highs in the major indices.

Merck (MRK) and Pfizer (PFE) both rose more than 2%. Coventry Health (CVH) rose 6% and Humana (HUM) gained more than 7%.

Kraft Foods (KFT) finally put together a deal with Cadbury PLC (CBY) that will cost Kraft $19.44 billion in cash and stock. Kraft fell slightly and Cadbury rose almost 6%.

The U.S. dollar gained ground again amid worries over the euro. The U.S. Dollar Index gained 0.6%.

At the close, the Dow was up 116 points to 10,725, the S&P 500 (SPX) rose 14 points to 1,150, and the Nasdaq (NASD) gained 32 points to 2,320. 

The NYSE traded more than 1 billion shares with advancers ahead of decliners by more than 3-to-1. The Nasdaq traded 604 million shares and advancers there were ahead by 9-to-4.

Crude oil for February delivery gained $1.02, closing at $79.02 a barrel, and the Energy Select Sector SPDR (XLE) closed at $59.80, up 54 cents. 

A big jump in consumer inflation in the UK vaulted gold for February delivery $9.50 higher to end at $1,140 an ounce, and the PHLX Gold/Silver Sector Index (XAU) gained $1.12 to $173.90.

What the Markets Are Saying

The major indices pulled off a victory again yesterday by rallying from their respective 20-day moving averages to new highs. The Dow’s triple-digit gain was, of course, due to a rush to buy health care stocks, but whatever the reason it at least temporarily thwarted a pullback in the stock market.

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So, despite the big spike of buying in late December and early January, the major indices are holding their own. They are making new 12-month highs despite technical indicators that are almost universally overbought. To a technician an overbought situation of this magnitude is very unnerving. But so far the Dow and the S&P 500 have managed to test the significant support represented by the 2009 highs, and did it convincingly.

Over six months ago, I targeted 1,120 as the S&P’s 2009 high, and it just made it before the end of the year. That number represents a full 50% retracement of the bear market, and now it takes on new significance as the key support number for the S&P. 

Last week I gave a detailed analysis of the support zones of the various indices and concluded that there are multiple layers of support that should provide consolidation bases from which new advances can be launched. 

But if there is one number that could trigger an extended round of malaise it is S&P 1,120. As long as that number is not violated, we should see much higher prices in all of the indices.

Today’s Trading Landscape

Earnings to be reported before the opening include: Applied Industrial Technologies, ASML Holdings, Bank of America, Bank of NY, Brinker, Coach, Covidien, Hudson City Bancorp, iGate, Jefferies Group, LaBranche, M&T Bank, Marshall & Ilsley, Morgan Stanley, Northern Trust, State Street, US Bancorp and Wells Fargo.

Earnings to be reported after the close: Amdocs, eBay, F5 Networks, Kinder Morgan Energy Partners, Logitech International SA, NVE Corp., Plexus, Raymond James, Seagate Technology, Skyworks, SLM Corp., Starbucks, Total System, Woodward Governor and Xilinx.

Economic reports due: MBA purchase applications, ICSC-Goldman Sachs store sales, housing starts (the consensus expects 579,000), producer price index (the consensus expects a 0% month-over-month change, and 0.1% ex-food and energy), and Redbook.

Late news: China may tighten their credit markets, according to the Wall Street Journal. IBM (IBM) reported Q4 EPS of $3.59 versus a $3.47 estimate, and projected at least $11 for 2010. Bank of America (BAC) reported 60 cents versus a 53-cent estimate. US Bancorp (USB) reported 30 cents versus a 29-cent estimate. State Street (STT) reported $1 versus a 97-cent estimate.  

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