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[Excerpted from Bill Cara's Daily Report]

Stocks sprinted out of the gate Monday morning euphorically embracing a spate of takeovers, undeterred by strength in the US dollar, or weakness in the Tokyo, Taiwan, and Shanghai stock markets. After closing near the best level of the session (S&P + 1.78%), US equities’ resiliency has finally convinced many unrepentant Bears to throw in the towel, no longer willing to stand in front of the bull market express train.

Xerox (XRX - 14.45%) announced it would pay 6.4 billion to acquire Affiliated Computer Systems (ACS + 14%), Abbott to use cash to buy Solvay’s drug business, and American Securities paid a huge premium to acquire GenTek (GETI + 39.87%). Companies willing to part with large sums of cash to buy businesses in face of lackluster economic prospects and continued high unemployment among consumers, was taken by traders as a very bullish omen for equities.

Among Cara 100 stocks impressive gainers included Brunswick (BC + 9.06%) with its second consecutive large daily percentage gain, Sandisk (SNDK + 5.13%), Dow Chemical (DOW + 4.93%), Garmin (GRMN + 4.48%), and Cisco (CSCO + 4.29% all motoring higher.

Losers were few and far between, with solar stocks (FSLR - 3.13%), steels (X - 0.69%), beleaguered Research in Motion (RIMM - 3.58%) and natural gas (UNG - 1.92%) exhibiting relative weakness.

In a notable change of recent behavior, strength in the US dollar did not prompt selling in US equities; perhaps the Yom Kipper observance kept many players sidelined, and the action Monday was just an anomaly. Maybe large money managers felt forced to increase upside exposure with the impending end of the quarter a few short days away. Maybe longs felt compelled to mark positions higher into the quarters end. Who knows why the market ignored the stronger dollar, but it certainly bears watching; it represents a departure from the norm, and could persuade market participants that the great liquidity rally of 2009 has much further to march.

The mini sell off last week took the S&P down to its 20 day EMA, the top of the late August highs, and an uptrend line connecting the July and early September lows on the daily S&P futures chart; certainly a logical place to mount a rally attempt. It remains to be seen whether the market spent enough time going down (a 3% sell off over 3 to 4 days hardly seems enough to correct an almost 7 month rally) to recharge the batteries.

With the end of the quarter looming on Wednesday it’s probably not a wise time to be taking a ton of risk. Tread carefully out there.

Have a great day.