Gold Party Far From Over

By Sam Collins,

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On Monday, stocks opened lower following an overnight rise in the U.S. dollar and concerns over the sovereign debt of the PIGS (Portugal, Ireland, Greece and Spain). Most of the day was spent making up for the initial losses, and the market closed modestly lower. It was the first loss for the Dow Jones Industrial Average in seven sessions.

With a general lack of economic news, the markets were set up for some profit-taking following Thursday's breakout and a gain for the week of 2.9%. Earnings seemed to have little to do with the overall direction of the market.

In corporate news, AOL, Inc. (NYSE: AOL ) jumped 4.7% following a Wall Street Journal report that the company was "exploring options," one of which was a possible arrangement with Yahoo! Inc. (NASDAQ: YHOO ). Ashland Inc. (NYSE: ASH ) rose 9.5% as a result of an announced sale of its distribution business to TPG Inc. for $93 million. General Steel Holdings, Inc. (NYSE: GSI ), the Chinese steel company, fell 6.8% after a Q3 earnings shortfall. And McDonald's Corp. (NYSE: MCD ) said that sales growth in October rose 6.5%, but the stock only gained a penny, while The Boeing Company (NYSE: BA ) announced more delivery delays of its Dreamliner, and the stock fell over $1.

The commodity complex was strong despite the dollar's gains, with the CRB Index up 0.5%. And technology stocks were the only other major sector to show a gain led by Cisco Systems, Inc. (NASDAQ: CSCO ), which was up in advance of its earnings report on Wednesday. Financials were the weakest sector, off 0.8%.

The euro fell 0.8% against the dollar at $1.3923 versus $1.4034 on Friday. The 10-year Treasury note closed at a yield of 2.55%, up slightly from Friday.

At the close, the Dow Jones Industrial Average was off 37 points at 11,407, the S&P 500 fell 3 points to 1,223, and the Nasdaq gained a point at 2,580. The NYSE traded 908 million shares, while Nasdaq exchanged 489 million shares. On both exchanges, decliners were ahead by about 1.2-to-1.

Crude oil for December delivery rose 21 cents to $87.06 a barrel. The Energy Select Sector SPDR (NYSE: XLE ) gained 19 cents, closing at $62.50. Gold closed above $1,400 an ounce for the first time with the December contract up $5.50 to $1,403.20. The PHLX Gold/Silver Sector Index (NASDAQ: XAU ) rose 5.26 points to a new closing high of 220.17.

What the Markets Are Saying

Yesterday, we noted that the massive breakout last week of the major indices gave the following upside targets:

S&P 500 1,313 (August 2008 high) Dow 11,933 Nasdaq 2,728 (December 2007 high)

Immediate support now reverts to the last resistance lines, so the S&P's immediate support is at the April 23 closing high of 1,217, and then 1,190, which is midway in the support zone of 1,174 to 1,210. For the Dow, the first support is at 11,205, and then 11,000 to 11,155. The Nasdaq's support is quite different because of its strong performance. Its first support is the bottom of a gap opened on Thursday, which is Wednesday's high at 2,541, and extends down to 2,535. Then there is a wider band from 2,480 to 2,535.

Our internal and sentiment indicators are now extremely overbought, so the market is probably going to pull back before resuming its uptrend.

Mark Arbeter of S&P puts it this way: "The stock market blasted off late last week, propelling the major indices to new recovery highs. However, the market is extremely overbought, and, in our view, now is no time to chase prices higher. We believe that the U.S. Dollar Index's break to new corrective lows last week was a major catalyst for the spike in stock prices, but the dollar has bounced and may be attempting to trace out at least a short-term bottom. The prospect of the long-awaited counter trend rally in the dollar may finally represent the impetus for a cooling off period for stocks, in our view."

But yesterday's strong move on the part of commodities in the face of a higher dollar is a dramatic change in relationship. It tells us that futures and especially precious metals may have embarked on a powerful new leg higher.

In a Wall Street Journal article titled "Gold Arches Ever Higher," Dave Kansas said: "Once the major economies, financial markets and currencies stabilize, gold will find it tough going. And when that time comes, a lot of true believers will get badly burned. But with terms like 'currency war' in the air that time seems some way off yet."

Hang on to your gold stocks since, as Yogi Berra said, "It ain't over 'til it's over."

To get our new target for gold ETF GLD, see the Trade of the Day .

Today's Trading Landscape

To see a list of the companies reporting earnings today, click here .

If you have questions or comments for Sam Collins, please e-mail him at .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Stocks
Referenced Stocks: AOL

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