On Monday, the market continued its plodding ways, but despite new 18-month highs, the Dow Jones Industrial Average (DJI) just couldn’t muster enough strength to conquer 11,000.
The payroll numbers that were released on Friday (when the market was closed) seemed to provide what the buyers needed to push stocks higher yesterday, but most of the buying was in the more speculative technology and small-cap sectors than in the Dow.
Apple’s (AAPL) new iPad sales didn’t meet some analysts’ estimates, but nevertheless the stock rose to new highs, gaining 1.1%, and took much of the technology sector along with it. Best Buy (BBY), a major iPad retailer, rose as well, gaining 1.9%.
Volume was again light, and some observers blamed the lack of commitment on the fear of a possible interest rate hike by the Fed. Others worried about the earnings reports that begin next Monday, marking the start of the new quarterly earnings season.
Alcoa (AA) is traditionally the first Dow stock to report earnings. Yesterday, AA gained 3 cents, but it was downgraded by JPMorgan Chase (JPM) amid rumors of an investigation of its dealings with China.
So the “wall of worry” continues to be climbed, and yesterday the Dow rose 46 points, closing at 10,974, the S&P 500 (SPX) rose 9 points to 1,187, and the Nasdaq (NASD) gained 27 points to close at 2,430.
The NYSE traded just 902 million shares with advancers over decliners by more than 3-to-1. The Nasdaq crossed 522 million shares with advancers ahead by 5-to-2.
Crude oil (May contract) rose $1.75 to $86.62 a barrel, and the Energy Select Sector SPDR (XLE) rose $1.04 to close at $59.58.
June gold gained $7.70, closing at $1,133.80 an ounce, and the PHLX Gold/Silver Sector Index (XAU) jumped 1.79 points to close at 173.07.
What the Markets Are Saying
One of the reasons for the slow, plodding nature of the market is that the public, having been badly burned by two nasty bear markets, are still not participating in the buying process. But neither are they selling.
Most of the wealth of the average American is tied up in IRAs, 401(k) accounts, cash, mutual funds, or long-term bonds and equivalents. If there is one thing that is common to all of these plans, it is that they are usually “static.” By that I mean that few changes will be made at the request of the owners of the plans, and the investment managers are unwilling to take risks that could backfire and lose them their management fees.
But as we approach the resistance zones outlined on Monday, we are dealing with major potential sellers frustrated by the pace of the market. Many have held portfolios that, despite the market’s bounce of more than 63% from the March 2009 lows, are still 20% to 40% underwater, and they are tired of hearing about the enormous gains made in stocks in the past year.
This makes the current market condition very vulnerable to bad news of any kind. So with prices at extremely high relative levels, a hike in interest rates by the Fed, a less-than-stellar earnings report by a major company, an unexpected war, or a host of other possible triggers could pull the support from stocks and turn profits into losses overnight.
Over 40 years of experience in this type of internal market structure leads me to be very cautious. New investments in stocks should be in very high-quality or highly predictable companies, and trades should be immediately followed with firm stop-loss orders. Momentum and momentum alone is slowly moving stocks forward against internal and sentiment readings that are excessively overbought.
Today’s Trading Landscape
There are no significant earnings to be reported today.
Economic reports due: ICSC-Goldman Sachs store sales, Redbook and FOMC minutes.
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