Despite the Fed’s concerns about retail sales and consumer spending, as reported in its Beige Book, stocks continued the advance that started Thursday Sept. 3. This gives the major indices four-straight days of gains, which were generally made in the face of negative economic news for the United States and a declining U.S. dollar.
Yesterday’s trading started on the downside but quickly reversed, and by 10 a.m., stocks were solidly on the plus side.
Gains by Dow 30 members Boeing (BA), General Electric (GE) and Caterpillar (CAT) more than offset losses by McDonald’s (MCD), Wal-Mart (WMT) and Home Depot (HD).
And the financials also did well after a slow start. AIG (AIG) gained almost 8.5% following two minus days. And Capital One (COF) rose almost 6% following an upgrade by Citigroup (C), which also upgraded Morgan Stanley (MS) and MasterCard (MA).
But it was the energy and materials that saved the day with a late rally that took the major indices from almost an unchanged condition at 3 p.m. to solid gains by the close.
The Dow Jones Industrial Average (DJI) gained 50 points, closing at 9,547, the S&P 500 (SPX) was up 8 points, closing at 1,033, and the Nasdaq (NASD) rose 23 points to close at 2,060.
The NYSE traded 1.2 billion shares with advancers ahead of decliners by just under 3-to-1. On the Nasdaq, advances were ahead of decliners by almost 9-to-4 on volume of 743 million shares.
What the Markets Are Saying
Despite the optimism expressed by various foreign economists about the awakening world economy, the news from the Fed and other domestic sources has been, at best, cautious. Yet stocks finished a four-day rally that puts the major indices very close to new highs.
The Dow’s intraday high of 9,630, made on Aug. 23, marks the top of a bull channel, which has been stubbornly tight with the support at 9,253. That support also turned into a reversal from our internal indicator, the Collins-Bollinger Reversal (CBR), on Sept. 3.
It would not take much more buying to push both the Dow and the S&P 500 to new highs.
But the big news yesterday is that Nasdaq has broken to new highs both on an intraday and closing basis, and despite somewhat overbought indicators, it looks like it could make a major run to our target of 2,300.
The critics will say that the volume, at just 743 million shares, is not enough to break this index into a major advance.
However, the evidence supports the view that low-volume breakouts have been occurring all year because the public is still out of the market and “sold out.” When there are very few sellers and buyers, on balance, prices will rise even if the overall volume is low.
So it looks like the market leadership is back in the hands of the small-cap and mid-cap stocks with the Nasdaq again leading the way to higher prices.
Today’s Trading Landscape
Earnings to be reported include: Descartes Systems Group (DSGX), Harry Winston Diamond Corp. (HWD), lululemon athletica (LULU), MDS Inc. (MDZ) and National Semiconductor Corp. (NSM).
Economic reports due: international trade (the consensus expects -$28 billion), jobless claims (the consensus expects 565,000), DJ-BTMU U.S. Business Barometer, EIA natural gas inventories and U.S. Energy Department oil inventories.
