by Sam Collins 10/01/08
Stocks rallied Tuesday, taking back more than half of Monday's losses. The Dow Jones Industrial Average (DJI) achieving its third-highest point gain ever, while the S&P 500 (SPX) had its best day in six years. Optimism about the pending rescue plan had something to do with the heavy buying, but more had to do with bargain hunting by institutional investors and massive short-covering.
Financial stocks led the gains, up 13.1%, but others were strong too.
The Dow 30 racked up a nice 4.68% gain with all but one of its components ahead on the day. The Nasdaq (NASD) rose 5% from a rush to technology stocks, leading those were the semiconductors. The Philly Semiconductor Index (SOX) gained 4.6%, with Intel (INTC) up 8.45%, Advanced Micro Devices (AMD) gaining 22.38% and Taiwan Semiconductor (TSM) up 7.7%.
After the flight to the safety of Treasury bills in the last couple of sessions, the flow went the other way yesterday. The 10-year note fell more than two points, popping yields up to 3.83%. Overnight LIBOR, the rate that banks charge each other, jumped to 6.875 from 2.568%.
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In economic news, consumer confidence in September scored a gain of 1.3 to 59.8, which bettered the expected 53.0. Home prices fell again in the month of July for the 25th consecutive month; July prices were down 16.3% versus last year and 0.9% from June.
At the close, the Dow Jones Industrial Average (DJI) was up 485 points to 10,851, the S&P 500 (SPX) gained 60 points to 1,166 and the Nasdaq (NASD) rose 99 points to close at 2,082.
The New York Stock Exchange traded more than 1.6 billion shares, with a positive breadth of 4-to-1. On the Nasdaq, that ratio was better than 2-to-1 positive on a volume of 963 million shares.
Crude oil (November contract) had a gain of 44.27, closing at $100.64 a barrel. The Amex Energy SPDR (XLE) gained $3.65 to $63.30.
As the dollar gains, gold falls, and yesterday gold for December delivery was off $13.60 to $880 per troy ounce. The PHLX Gold/Silver Index (XAU) fell $1.81 to $131.21.
What the Markets Are Saying
The broader market swings have been an exciting reprieve for traders, but for investors it's been one painful day after another.
Tuesday's daily price swing (low to high) almost topped 500 points on the Dow (DJI) on an up-day of 485 points, and Monday saw a range of 778 points with the Dow down all 778. What is most interesting, is that on both days, the daily trend started right out of the gate.
In other words, traders had to guess the trend correctly from the start or be quickly in the red, but then were annihilated by the close. To make trading even more exciting, in five of the past 11 trading days, the trend was exactly opposite to the prior day's trend. Pass the Maalox.
And what can we expect for today's market?
Even though the wide swings and high CBOE Volatility Index (VIX) and CBOE Nasdaq Volatility Index (VXN) numbers are characteristic of a final bottom, I'm not yet convinced that we've seen the final low. Yesterday's run-up failed to reach the very high volume numbers expected from a reversal, and much of the volume was either due to shorts running for the exits or hedge-fund activity -- with a lot of it from abroad.
This market is, unfortunately, in the hands of the politicians and that has created almost unprecedented uncertainty. This extreme insecurity has driven the markets through the mid-September lows and into several broad tiers of support that were formed from late 2003 to mid-2005.
We will more than likely find our ultimate bottoms somewhere within that broader range of support, and we could be very close in time to the bottom. But until the politicians take to an exit, both investors and traders had better get used to gulping Maalox -- or something even stronger.
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Today's Trading Landscape
Earnings to be reported include: Actuant Corp (ATU), Immucor (BLUD), Micron Technology (MU), Standard Microsystems Corp. (SMSC) The Mosaic Co (MOS) and Wolverine World Wide (WWW).
The following economic reports are due: the September American Data Processing (ADP) Employment Report (the consensus expects negative 53,000), August Construction Spending (the consensus expects negative 0.5%) and the September Institute for Supply Management (ISM) Manufacturing Business Index (the consensus expects 49.5).
Tonight the Senate is expected to vote on the emergency bailout package and the House is expected to vote on it later this week. Argus Research says that the earnings yield spread is 4% higher than bonds and that strongly favors stocks. It also reports that we are either at the market lows or within 5% of market lows.
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Sam Collins can be reached directly at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
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.
