by Sam Collins 09/26/08
Stocks opened strong Thursday and held the gains throughout the session as reports of an agreement on a rescue package for the financial sector flooded the news. At one point, the Dow Industrials (DJI) were up 300 points and, since it looked like a done deal, attention began to move to other economic and business news.
General Electric (GE) had many investors worried that the big conglomerate would pull down the averages. But following GE's announcement that it was lowering its outlook for Q3 and suspending its share buyback program, it said that it would maintain its current dividend of $1.24 through 2009. That seemed to satisfy the Street, especially after Standard and Poor's affirmed its AAA-rating.
In earnings news, Bed Bath & Beyond (BBBY) met earnings estimates and Nike (NKE) exceeded estimates.
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In economic news, durable goods orders fell 4.5% for August and the figure was worse than expected. Jobless claims for the week ending Sept. 20 were up 32,000, and that was more than expected.
At the close, the Dow Jones Industrial Average (DJI) was up 196 points to 11,022, the S&P 500 (SPX) gained 23 points to 1,209 and the Nasdaq (NASD) rose 31 points to 2,187.
The New York Stock Exchange traded 1.2 billion shares, with breadth a positive 3-to-1. The Nasdaq recorded volume of 740 million with advancers there ahead by 4-to-3.
The November crude oil contract rose $2.29 to $108.02 a barrel, and the Amex Energy SPDR (XLE) gained $1.66 to $69.55.
The December gold contract fell $13 to $882 per troy ounce, and the PHLX Gold/Silver Index (XAU) fell $4.15 to $141.48 -- which almost covers a small gap from $139.80 to $142.01. With the stochastic now overbought, the gap will most likely be overshot. The next support for the XAU is at $130.
What the Markets Are Saying
Now, with the market trading on the minute-by-minute news from Washington and voter sentiment running against the president's "rescue plan," you would think that the public's measure of fear would be off of the chart -- not so.
Wednesday's American Association of Individual Investors sentiment survey shows that bullish sentiment rose to 34.04% from 27.21%, and bearish sentiment fell to 45.74% from 54.42% -- and this is a negative for the market. But hold on.
According to Investors Intelligence, its latest report of corporate insiders activity shows that these "in-the-know guys" are buying and that's a very positive sign. Investors Intelligence notes that in January, March, and July, at these three market lows, the insiders were buyers then too.
Further, our own sentiment and internal indicators are now neutral, so we have a technical standoff with the markets almost fully sensitive to daily news -- and that news is the president's rescue plan.
For the S&P 500 (SPX), the next big support area is at 1,146 to 1,241, with a key reversal number at 1,170. It is likely that this zone will hold unless volume increases with new selling, in which case we could see a violent thrust down to 1,100 or lower with the next Fibonacci number at 1,078, which represents a 61.8% retracement of the prior six-year bull market.
Again, all attention will be focused on D.C. and the tussle going on between the major parties trying to pass the financial rescue plan. If they are successful, look for a modest rally and then a test of the recent lows. But if talks bog down, the market will surely sell off. Stay tuned.
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Today's Trading Landscape
Earnings to be reported include: American Greetings Corp. (AM), AZZ Inc. (AZZ), GenCorp (GY), Jabil Circuit (JBL), KB Home (KB) and Park Electrochemical (PKE).
The following economic reports are due today: second-quarter final GDP, second-quarter revised corporate profits, and the end of September Reuters/U Michigan Sentiment Index (the consensus expects 70).
Washington Mutual (WM) has been seized by the government and its assets have been bought by JPMorgan Chase (JPM) for $1.9 billion. It is the largest bank failure in U.S. history but will not cost Federal Deposit Insurance Corp. (FDIC) or the public.
Negotiations will start again this morning to hammer out a deal between top political leaders and the administration after things fell apart late yesterday. The Wall Street Journal reported, "Wrangling among the nation's top political leaders threw the Bush administration's $700-billion bailout plan into disarray late Thursday, despite a dramatic day of negotiations on Capitol Hill that seemed to promise a deal."
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FAST is now consolidating and recently flashed a buy signal from our internal indicator.
Options Expiration Adds Volatility
The opening looks to be higher but today is options expiration day, and anything could happen.
Chances are high stocks will sell off further, but be alert for a dead-cat bounce after such a dramatic breakdown.
Traders and longer-term investors should sell any new positions at the first opportunity and short ETFs on a temporary recovery in the market.
CAT, the blue-chip of its industry, is the first to attract attention when it's time to dress up a portfolio.
