Indexes Up in Quiet Rally

[Excerpted from Bill Cara's Daily Report]

The S&P 500 (+13.07 +1.58% to 838.51), DJIA (+141.53 +1.78% to 8078.36), and NASDAQ Composite (+21.87 +1.46% to 1516.30) were all much improved on Tuesday. But, the action was probably the quietest +1.6% rally in recent memory. Perhaps it was the continual selling pressure in the financial sector (XLF -1.8%), dampening bullish spirits, but the drift up into the close, while broadly based, was still less than impressive.

The Toronto Composite (+3.80 +0.04% to 8628.63) went nowhere and the Venture Board (-3.57 -0.41% to 869.25) pulled back a bit. That’s still a rise of +2.3% in eight sessions for this index of high-risk stocks.

Earlier in the day Wednesday, the European bourses were strong. By 8:00am ET, the French CAC had gained +1.20%; the German DAX +1.03%; and the UK FTSE 100 +0.50%.

Wednesday also, the Asia-Pacific equity markets were strong except for Australia (-1.94% to 3382.3). The Nikkei 225 (+2.73% to 8038.9); Hong Kong (+2.25% to 13063.9); and India’s Sensex BSE 30 (+0.57% to 9201.9) were much higher. Shanghai (+2.28% to 2107.8) is up almost +5.0% in two days.

Tuesday in NY, there were many winning sectors, led by Consumer Discretionary (XLY +2.8%). Only Financials (XLF -1.8%) held the market back, mostly due to the Banks ($BKX -5.2%). The Biotechs ($BTK +3.7%) were strong. Corporate earnings there are somewhat better than expected.

Oppenheimer banking analyst Meredith Whitney made another appearance on Bloomberg TV toay to say that the Big Three US Banks (Citi (C), Bank of America (BAC) and JP Morgan (JPM)), which essentially are behind 95% of the credit derivatives market problems and probably create two-thirds of credit in the US are still a mess.

The Goldminer index ($XAU) was flat.

As for the Cara 100, the winners included an eclectic group: Deutsche Bank (DB +8.4%); Target (TGT +6.3%); Bed, Bath & Beyond (BBBY +5.8%); ABB (ABB +5.8%); and Nucor (NUE +5.5%). Banking, retailing, infrastructure and steel. Hmm.

The losers were led by SanDisk (SNDK -23.2%) on huge volume (+309% of average daily volume), as traders did not like the reported earnings or guidance. There is a lot of arbitrage going on here for a potential deal, so most of the public is best to avoid trading this stock.

I’ll cut this short so I can catch the open. But, I feel that precious metals, oil and US equities will hold their support levels at this point. Traders are looking to the Administration and the Fed to resolve the crisis at the Big Three banks. Until then, volume ought to remain low and prices stay in a narrow trading range.

Comments

[David White:]

On my chart of the SPY, there is a pennant formation building. After being up today, Feb. 4 at about 11am ET, the market is at the top of the pennant formation. It can either break through, or it can go back down. At this moment it looks like it is trending downward. The bottom of the pennant is in the $82 area. We are currently at about $85. With the ADP employment number today, I am guessing that there is limited upside, even with Washington a big plus in the last few days. I have no real opinion on the end direction of the pennant.

There is one technical factor that is weighing to the downside. The Dow Jones Transports have set new record lows recently (below the Nov. lows). The Dow Jones Industrials have not. There is some reason to believe the Dow Jones Industrials will follow the same pattern as the Transports (i.e. set a new low). Since this hasn't happened yet, it just makes the possibility that the eventual direction after the pennant completes will be down.

On the negative news side, the S&P500 results have been much worse than expected. We just lost 522,000 jobs last month. The unemployment rate is supposed to be about 7.5% now. The petroleum stocks have risen for the 7th week in a row. Since the S&P500 is energy top-heavy, this seemingly good news is likely to make the S&P500 go down.

On the positive side the news out of Washington has been good. There is the stimulus package, which looms closer to approval. There is the "bad bank" proposal. There is the government backed low mortgage rate proposal. All of these things would tend to make the markets go up.

Be nimble and careful.

Feb 04 11:30 AM

[David White:]

Correction: 533,000 jobs. Also apparently the market was expecting some correction of last months number due to the discrepancy between the government number and the ADP number last month. That this did not happen makes market watchers think that the government's number this month may be much worse than expected.

At this point 2:19pm ET, the market is substantially off its highs (as I early mentioned it would likely be). It is unclear where it will go from here today (SPY $83.42).

Feb 04 02:20 PM