Warning -- Market May Cause Indigestion

By Sam Collins,

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On Tuesday, stocks rallied on reports that Germany would lead an effort to bail out Greece. And even though a bailout of one country of the EU caused optimistic buying, the EU will still have to consider problems with Spain and Portugal.

Despite the complexities of another global financial mess, the stock rally sent the Dow Jones Industrial Average ( DJI ) to another triple-digit gain.

The Dow was helped along by an upgrade of Caterpillar ( CAT ) by Morgan Stanley ( MS ) sending the stock up more than 2%. And another Dow component, Coca-Cola ( KO ) rose even though it missed analysts' forecasts. An upgrade of Monsanto ( MON ) by Merrill Lynch boosted the materials stocks to a 2.5% gain. 

The U.S. dollar quickly fell as the euro rallied following the news that Germany was leading an effort on behalf of Greece. Financial stocks in the U.S. reacted favorably to the euro news, gaining back some of the losses of last week. But both Bank of America ( BAC ) and Citigroup ( C ) didn't participate in the gains due to a decision by S&P to lower the rating on both to "negative" from "stable."

At the close, the Dow Jones Industrial Average rose 151 points to 10,059, the S&P 500 ( SPX ) gained 14 points to 1,071, and the Nasdaq ( NASD ) gained 25 points to 2,151.

The NYSE traded 1.2 billion shares with advancers ahead of decliners by 4-to-1, and the Nasdaq traded 709 million shares with advancers ahead by 9-to-5.

March crude oil ended with a gain of $1.86 to $73.75 on the news of a possible plan to rescue Greece. The Energy Select Sector SPDR ( XLE ) rose $1.13 to $54.87. 

April gold rose $11 to settle at $1,077.20 an ounce, and the PHLX Gold/Silver Sector Index ( XAU ) closed at $155.07, up $5.73.

What the Markets Are Saying

Yesterday's rally was a welcome relief to the stock market since the action by Germany showed that one nation was willing to take a leadership role in the stabilization of the euro. But despite the triple-digit rally in the Dow, the technical picture remains unchanged.

Since Jan. 21, the major indices have been "stair-stepping" their way lower, forming a bear channel with every low lower than the prior one. Arching downward, and just 245 points above current prices, is the Dow's 20-day moving average. And 95 points above that is the 50-day moving average. 

Meanwhile, the CBOE Volatility Index ( VIX ) jumped to the upper 20s following a run from under 20. This run is an indication that very high volatility, along with an increase in uncertainty, has entered the market. That combination in a short-term uptrend can be positive, but in a correction it can be hazardous since it often leads to markets that whipsaw from surprise announcements and news.

In order to resolve the current dilemma, the bulls must continue to charge ahead and surmount both the 20- and 50-day moving averages. Today that seems unlikely, but what is clear is that the uncertainty and volatility will likely remain high.

If you plan to buy stocks in an atmosphere like this, you had better order a case of antacids to go along with your Wall Street Journal.

Today's Trading Landscape

Earnings to be reported before the opening include: ACCO Brands, ArcelorMittal, CAE, Coca-Cola, Computer Sciences, Dean Foods, Discovery Communications, Elan, Forrester Research, IntercontinentalExchange, Jones Apparel Group, L-1 Identity Solutions, Lance, Level 3 Communications, Louisiana-Pacific, Marsh & McLennan, Max Capital Group, Medtox Scientific, NeuroMetrix, New York Times, Northwest Pipe, Omnicom Group, PF Chang's, Scripps Networks Interactive, Sigma-Aldrich, Sonoco Products, Sprint Nextel, Talisman Energy, Textainer Group Holdings, TransDigm Group, Wright Express, and Wyndham Worldwide.

Earnings to be reported after the close: Activision Blizzard, Allstate, Amkor Technology, AptarGroup, Arris Group, BioMed Realty Trust, Boston Scientific, Cambrex, China Digital TV Holding, ComScore, Copa Holdings, Core Labs, CPI International, Cray, DaVita, Deltek, Dentsply, EastGroup, Echelon, Education Management, Encore Wire, Equinix, Everest Re Group, Glu Mobile, GSI Commerce, Hanger Orthopedic Group, Highwoods Properties, Insight Enterprises, Kona Grill, LivePerson, Longtop Financial Technologies, LoopNet, Masco, Medidata Solutions, Neustar, OraSure Technologies, PartnerRe, Penn Virginia, Plains All America, Protective Life, Prudential, Realty Income, Sierra Wireless, Taleo, Torchmark Corp. and Wonder Auto Technology.

Economic reports due: MBA purchase applications, international trade, EIA petroleum status report and Treasury budget.

Late quarterly earnings news (earnings vs. estimated):

  • ACCO Brands ( ABD ): 21 cents vs. 22 cents
  • ArcelorMittal ( MT ): 68 cents vs. 27 cents
  • Elan ( ELN ): 10 cents vs. 8 cents
  • IntercontinentalExchange ( ICE ): $1.13 vs. $1.14
  • Jones Apparel ( JNY ): 11 cents vs. 11 cents
  • Lance ( LNCE ): 36 cents vs. 38 cents
  • March & McLennan ( MMC ): 38 cents vs. 37 cents
  • NeuroMetrix ( NURO ): 8 cents vs. 8 cents
  • Omnicom (OMC ): 73 cents vs. 72. cents
  • Spring Nextel ( S ): 34 cents vs. 19 cents
  • Talisman Energy ( TLM ): 7 cents vs. 7 cents 
  • Transdigm Group ( TDG ): 70 cents vs. 71 cents
  • Wyndham Worldwide ( WYN ): 40 cents vs. 37 cents

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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

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Sam Collins

Sam Collins

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