On Friday, investors experienced a volatile session that started on the downside following a worse-than-expected January employment report. But a late-day rally in stocks, pushed by short-covering and profit-taking in the dollar, reversed stock indices for the first time in weeks. Earlier in the week, a flight to the dollar following a crisis in the euro had the opposite impact as stocks plunged and the dollar hit six-month highs.
Technology stocks led the market higher with Cisco Systems (CSCO) up 2.3% following better earnings and Intel (INTC) higher by 2.4%. And materials companies rose, led by Alcoa (AA), up 2.1%. But it was a touch-and-go affair with big names like Boeing (BA) falling 1.6% on concerns about future orders from the countries in the latest round of economic problems like Greece, Portugal, and Spain.
The Dow traded below 10,000 for most of the day but the late high-volume rally, which overcame a triple-digit decline of more than 170 points, resulted in the first reversal in weeks.
At the close the Dow Jones Industrial Average had gained 10 points closing at 10,012; the S&P 500 was up 3 points to 1,066; and the Nasdaq rose 16 points and closed at 2,141. The NYSE traded 1.6 billion shares, with decliners ahead by 9-to-7. The Nasdaq crossed 897 million shares and advancers led decliners by 7-to-6.
The March crude oil contract fell $1.95 to $71.19 a barrel, but the Amex Energy SPDR (XLE) gained a point and closed at $54.24 on a daily reversal up.
The February gold contract fell $10.90 to $1052.70 an ounce, and the PHLX Gold/Silver Index (XAU) rose $7.83 to $154.25 for a key reversal while flashing a buy signal from its slow stochastic. Traders will no doubt look for a rally in the XAU. That move could take it back up through its 200-day moving average at $157.82 to above its 20-day moving average at around $163– and perhaps even to the 50-day moving average at above $170.
What the Markets Are Saying
Following the worst single day sell-off in eight months with breadth of 35-to-1 on the Big Board, stocks reversed field on Friday, overcoming what could have been the fourth triple-digit decline in a week.
As a result of a violent last-hour rally, the key stock indices registered a daily reversal. But despite Friday’s heavy buying, we can’t assume that the reversal will result in a permanent change in trend. The extensive damage done to the technical structure of the market earlier in the week was so great that it is difficult to accept that a single technical phenomenon could undo all of the damage.
Nevertheless, there will be some who will jump aboard this rally with the expectation that all of the bad news is out and that an oversold stock market will continue to rise to new highs.
I agree that the last hour of buying, especially buying in the blue chips, was quite impressive. But the reversal barely occurred, with the S&P 500 gaining just over 3 points. And despite the dramatic buying prior to a weekend, the internal indicators failed to register any new buy signal.
But the S&P 500 could spring to the double-top at 1,103-1,104 or even to the conjunction of the 20- and 50-day moving average at around 1,100. But at those levels massive resistance, astute traders will no doubt pummel that market with sell orders.
Thus, our strategy remains unchanged: Sell into rallies, raise cash, and wait for the next deep sell-off before establishing new positions.
Today’s Trading Landscape
Earnings to be reported before the opening include: Albany Molecular, American Capital Agency, Boardwalk Pipeline, China Green Agriculture, Chindex, CNA Financial, Cumberland Pharmaceuticals, CVS Caremark, Genesee & Wyoming, Hasbro, Healthspring, Littelfuse, Loews Corp, Lorillard, Mercury General, Nasdaq, NV Energy, Sirona Dental Systems, and Vitran. After the close: ADC Telecom, Andersons, Atmel, Axis Capital, Bway Holding, Camden Property Trust, Charles River, Chimera Investment, Compass Minerals Int’l, Comstock, Cousins Properties, Cutera, Electronic Arts, Encore Capital, Evergreen Solar, Forward Air, Harman, Hartford Financial, Himax Technologies, Horace Mann, Lincare, Lincoln National, Nuance Communications, Otter Tail Power, Owens & Minor, Parkway Properties, Pike Electric, Post Properties, PPD, Principal Financial, Qiagen, Rentrak, Skilled Healthcare, SolarWinds, SRA Int’l, Terremark Worldwide, Time Warner Tcom, Veeco Instruments, ViaSat, Vulcan Materials, W.R. Berkley, Waste Connections, and Zoltek.
There are no significant economic reports due today.
Late news: Quarterly earnings versus estimates — Boardwalk Pipeline (BWP) with 37 cents versus expectations of 30 cents, CAN Financial (CNA) at 63 cents versus expectations of 73 cents, Genesee & Wyoming (GWR) at 40 cents versus expectations of 37 cents, Healthspring (HS) at 68 cents versus expectations of 62 cents, and Loews (L) at 94 cents versus expectations of 95 cents.
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