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Market Pulls a Jack Bauer

Posted
4/30/2010 7:45:00 AM
By: Sam Collins
Referenced Stocks:AXP;BAC;DD;DIS;DJI;GE;NASD;SPX;XAU;XLE

 

The Dow Jones Industrial Average ( DJI ) rose 1.1% yesterday, one of its largest single-day gains in two months. Buyers were attracted by the partial resolution of two major concerns that have been hanging over the market for weeks: Q1 earnings continue to exceed expectations and the debt crisis in Europe appears to be easing.

The Dow's gain was broad based, with American Express ( AXP ) leading the senior index with a gain of 3.3%. Disney ( DIS ) rose 2.56%, Bank of America ( BAC ) gained 2.92%, DuPont ( DD ) was up 2.81%, and General Electric ( GE ) was up 2.8%, rounding out the top five. The diversity of the Dow's advance was also true in the general market as all of the S&P's sectors showed gains. Only the utilities were unchanged.

Bond prices in Spain, Portugal and Greece improved, showing confidence in the European Union's efforts to solve their debt crises. The Wall Street Journal reported that the Germans were "fast-tracking" an $11.9 billion package of German aid for Greece. The U.S. dollar fell 0.5% as a result of a higher euro.

Bank stocks were strong as the probability of the Senate passing a regulatory bill improved. Financial stocks led the S&P 500 ( SPX ) with a gain of 2.5%.

At the close, the Dow was up 122 points to 11,167, the S&P 500 rose 15 points to 1,207, and the Nasdaq ( NASD ) gained 49 points (up 1.63%) to 2,512. 

The NYSE traded 1.4 billion shares with advancers ahead of decliners by over 3-to-1. The Nasdaq traded 829 million shares with advancers ahead by just less than 3-to-1.

Crude oil for June delivery gained $1.95, closing at $85.19 a barrel, and the Energy Select Sector SPDR ( XLE ) gained 9 cents, closing at $60.68. 

June gold fell $3 to settle at $1,168.80 an ounce on an easing of concerns over the European debt structure. The PHLX Gold/Silver Sector Index ( XAU ) rose 1.99 points, closing at 178.59.

What the Markets Are Saying

After Tuesday's serious wounding, it seemed unlikely that the bull would so quickly rise to its feet again. But like Jack Bauer, in just a matter of hours it was back at it again -- driving toward the top of this year's highs.

On Wednesday, we saw buyers arrive just as the lows from Tuesday had been tested at the S&P 500's March peak at 1,180. And yesterday turned into a confirmation of the importance of that number, which is the first and perhaps most important support number to focus on. If it fails to hold, the two-day recovery will almost certainly be reversed.

But what of yesterday's rally? Doesn't it prove that last week's highs must give way to a new rush of buyers?

In short, no. Yesterday's rally was chiefly the result of another headline grabber -- an easing of tensions over the crisis with Greece and the EU. And with stocks there is no "must," only "maybe." Even two days up has yet to equal the one day (Tuesday) that was down.

Yes, it is possible that new highs could be made, but that doesn't change the fact that the stock market is grossly overbought (near term) and that disappointments could turn into a sharp downward correction. However, because the overall trend is still up, we should view a pullback as an opportunity to buy stocks that previously ran away from us. But this does not mean that investors should chase stocks to new highs.

It is time to be cautious, to prune portfolios of laggards, raise cash, and hold good, quality stocks with a bright outlook. It is also a time to rein in our emotions and wait for the next opportunity to add to our portfolios.

Today's Trading Landscape

Earnings to be reported before the opening include: Acorda Therapeutics, Allergan, Allete, American Axle, Amerigroup, Aon, Apartment Investment & Management, Avon Products, Barnes Group, Chevron, China Sunergy, CNA Surety, Colfax, Constellation Energy, Coventry Health Care, Discovery, Domtar, DR Horton, Endo Pharmaceuticals, Federal Signal, HMS Holdings, Interline Brands, ISTA Pharmaceuticals, ITT Industries, James River Coal, LifePoint Hospitals, Magellan Health, MDU Resources, MoneyGram, Moog, Nasdaq, Nash Finch, Newell Rubbermaid, Penske Automotive, Ruth's Hospitality Group, Simon Property Group, Stoneridge, T-3 Energy Services, Trex and V.F. Corp.

Economic reports due: GDP (the consensus expects 3.4%), employment cost index (the consensus expects 0.4%), Chicago PMI (the consensus expects 60), consumer sentiment (the consensus expects 71), and farm prices.

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