Sam Collins

Nice Rally, But Low Volume

by Sam Collins   10/21/08

Apparently Fed Chairman Ben Bernanke made a good impression on Capitol Hill yesterday when he encouraged lawmakers to consider another fiscal stimulus package.

The "suggestion" was short on detail, which frustrated some of the congress members, but Bernanke's statement was quickly taken up by the White House and the impact of the double-team approach to a fiscal package was enthusiastically supported by the markets.

Energy shares were the most active -- mostly because they are so thoroughly oversold -- and today they were supported by a 3.3% hike in the price of crude oil. ExxonMobil (XOM) rose 10.2%, Chevron (CVX) gained 11.6%, El Paso Corp. (EP) rose 15% and Apache Corp. (APA) gained 10.39%.

Rumors continue regarding talks between Chrysler and General Motors (GM); the Detroit News reported that both sides want to do the deal and get it over with prior to the Nov. 4 presidential elections. But the Wall Street Journal said that negotiations are on the ropes because GM is unable to secure the financing needed to get it going.

At the close, the Dow Jones Industrial Average (DJI) gained 413 points at 9,265, the S&P 500 (SPX) rose 45 points to 985 and the Nasdaq (NASD) gained 59 points to close at 1,770.

The New York Stock Exchange traded just over 1.2 billion shares, with breadth at a positive 5-to-1. On the Nasdaq, breadth was a positive 3-to-1, with volume of 870 million shares.

At Friday's meeting in Vienna, OPEC President Chekib Khelil said that the cartel should make "substantial cuts" in oil output. Crude oil for November delivery responded by rising $2.40 to $74.25 a barrel, and the Amex Energy SPDR (XLE) gained $5.35, closing at $51.29.

The December gold contract gained $2.30 to $790 per troy ounce, but gains were limited by a stronger dollar. The PHLX Gold/Silver Index (XAU) closed at $95.06, up $9.21.

What the Markets Are Saying

It's always nice to start the week with a 400-point Dow (DJI) rally -- due to Fed Chairman Ben Bernanke's talk to Congress. It is reassuring, as well, to have a major reversal confirmed with an up-day following a mild test of the low on Oct. 10, when the S&P 500 (SPX) hit a new low of 840.

But what is not so nice is the lack of volume that should accompany a major reversal.

So far, the biggest volume day was Oct. 10, when the Dow closed under 8,000 for the first time in many years, and the New York Stock Exchange traded more than 3 billion shares.

Here is the volume and up/down day record since Oct. 10:

• Oct. 13 -- up 936 points on 1.8 billion shares

• Oct. 14 -- down 77 points on 1.9 billion shares

• Oct. 15 -- off 733 points on 1.6 bill shares

• Oct. 16 -- up 401 points on 2 billion shares

• Oct. 17 -- down 127 points on 1.7 billion shares

• And, yesterday, Oct. 20 -- up 413 points on 1.2 billion shares

Some analysts said that since the market has made "at least" an intermediate bottom, volatility should decline and the market will more than likely rally back to the Dow 11,000 resistance zone.

But with a symmetrical triangle as its current technical pattern and low volume with virtually no support below it or resistance above it, prices could easily run in either direction.

Unless you are positioning blue-chip stocks for the long-term, this is no time for heroics. Any slight bit of unfavorable news could crush stocks. And with Q3 earnings coming in fast and furiously, it is almost certain that in such a highly-charged marketplace, someone will cry "fire" in the crowded theater.

Today's Trading Landscape

Earnings to be reported include: 3M Co (MMM), Adaptec (ADPT), AK Steel Holding Corp (AKS), Ametek (AME), Amylin Pharmaceuticals (AMLN), Anixter Int'l (AXE), Apple (AAPL), Arbitron (ARB), Arlington Tankers Ltd (ATB), Astec Industries (ASTE), Autoliv (ALV), Avery Dennison Corp (AVY) and Avocent Corp (AVCT).

Biogen Idec (BIIB), BlackRock (BLK), Boston Scientific Corp (BSX), Brinker Int'l (EAT), Broadcom (BRCM), Canadian National Railway (CNI), Carlisle Companies (CSL), Carter's (CRI), Caterpillar (CAT), Cavalier Homes (CAV), CEC Entertainment (CEC), Celanese Corp (CE), Century Aluminum (CENX), Chemed Corp (CHE), Coach (COH), Compellent Technologies (CML), Cree (CREE) and CSG Systems (CSGS).

E*Trade Financial Corp (ETFC), Edwards Lifesciences (EW), Endwave (ENWW), Equity LifeStyle Properties (ELS), Everest Re Group Ltd (RE), Fifth Third Bancorp (FITB), First Cash (FCFS), Forest Laboratories (FRX), Freeport-McMoRan Copper & Gold (FCX), FSI Int'l (FSII), Fulton Financial (FULT) and Gentex (GNTX).

Hancock Holding Co (HBHC), Imation Corp (IMN), Infinera Corp (INFN), Iteris (ITI), JAKKS Pacific (JAKK), Jefferies (JEF), KeyCorp (KEY), Lexmark Int'l (LXK), Lockheed Martin (LMT), LogicVision (LGVN), Luby's (LUB), Manhattan Associates (MANH), Manpower (MAN), Monro Muffler Brake (MNRO) and MSC Industrial Direct (MSM).

National City (NCC), Norfolk Southern Corp (NSC), Omnicom Group (OMC), PACCAR Inc. (PCAR), Panera Bread (PNRA), Pentair (PNR), Platinum Underwriters Holdings Ltd (PTP), Precision Castparts (PCP), Prudential PLC (PRU), QLogic (QLGC) and Quest Diagnostics (DGX). Raymond James (RJF), Regions Financial Corp (RF), Renasant Corp (RNST), Schering-Plough (SGP), Sterling Financial Corp (STSA), Sybase (SY), Taubman Centers (TCO), Telefonos De Mexico (TMX) and Tellabs (TLAB).

The McClatchy Co (MNI), The Stanley Works (SWK), Tupperware Brands (TUP), U.S. Bancorp (USB), UAL Corp (UAUA), Virginia Commerce (VCBI), VMware (VMW), Waste Connections (WCN), Waters Corp (WAT), Webster Financial Corp (WBS), Western Union Co (WU) and Yahoo (YHOO).

The following economic reports are due: International Council of Shopping Centers (ICSC) Chain Store Sales Index for Oct. 18, Redbook Retail Sales Index for Oct. 18 and the ABC/Washington Post Consumer Confidence for Oct. 19.

American Express (AXP) reported Q3 earnings of 70 cents a share versus an estimated 59 cents. DuPont (DD) reported Q3 earnings of 56 cents a share versus an estimated 51cents. Pfizer's (PFE) Q3 earnings came in at 62 cents a share versus an estimated 60 cents.

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