Sam Collins

Bulls Catch a Break

by Sam Collins   10/29/08

Tuesday stocks traded for much of the session in the see-saw pattern that has become the norm.

The day started off with a rally due to favorable news at Boeing (BA) and General Motors (GM) and strong overseas markets, but quickly lost steam after consumer confidence figures disappointed with the weakest reading ever. But while everyone was contemplating a Christmas without Santa Claus, trading took a surprising turn.

At around 2:30 p.m. Eastern, buyers emerged driving prices with a steady flow of orders. And then just before the close, with the Dow (DJI) up an impressive 675 points, a true flood of buying hit the floors. In just minutes the index jumped up another 314 points -- achieving the second-highest point advance ever and a gain of 10.9% for the Dow.

To those who observed the deluge of buying, it was like a tightly-coiled spring had suddenly been released, as short sellers scurried to cover just before the closing bell.

Every stock in the Dow Jones Industrial Average scored gains, with Alcoa (AA) gaining the most, up 19.3%. But Boeing was also the subject of buying, up 15.5%. The energy stocks had big gains, as well, rising from the ashes of the unprecedented pounding of crude oil. Chevron (CVX) gained 13.47% and ExxonMobil (XOM) rose by 13.27%.

The financials, which in six months have fallen to a fraction of their value, sprang back with some of Dow's members in the lead. American International Group (AIG) rose 35.56%, American Express (AXP) gained 10.36%, and JPMorgan (JPM) was up 10.59%.

The materials sector, which took it on the chin on Monday, rebounded; Hercules (HPC) gained 27.1% and DuPont (DD) rose 10.54%.

The Fed will conclude its two-day meeting today and many anticipate that they will announce another interest-rate cut. Most observers favor a cut of 0.5% but think that .75% is possible. And the Bank of Japan and possibly several European banks could cut rates, as well, as a concerted effort to spur a global recovery gets underway.

At the close, the Dow Jones Industrial Average (DJI) had gained 889 points to 9,065. The S&P 500 (SPX) rose 92 points to 941 and the Nasdaq (NASD) gained 144 points to 1,649.

The New York Stock Exchange traded 1.7 billion shares, with advancers ahead by 4-to-1. On the Nasdaq, 1.3 billion shares traded with advancers there ahead by 2-to-1.

The December crude oil contract fell 49 cents to $62.73 a barrel and the Amex Energy SPDR (XLE) gained $6.23 to close at $47.09.

The December gold contract fell $2.40, closing at $740.50 per troy ounce. The PHLX Gold/Silver Index (XAU) surged $6.23 to close at $47.09.

What the Markets Are Saying

Tuesday, I noted that bear market rallies often retrace up to 20% to 30% of the full bear-market fall, with a rush of buying that startles even the most seasoned veteran.

Yesterday, the major indices rocketed to a 10.9% gain from Monday's close with much of that coming within the last couple of minutes of trading, as short sellers reacted to some hefty bargain hunting, panicked and then ran for the exits. Lots of money on the sidelines often contributes to a shorts panic and now, with more than a trillion dollars in money markets, it should be no surprise that on any given day a rally of 10% is possible.

But even with all of that money just waiting to be put to use, yesterday's volume at just 1.7 billion shares is puny -- especially for a rally of such magnitude. What volume there was went to the sectors that were most sold-off, like the financials, materials, gold miners and Real Estate Investment Trusts (REITs).

As noted, rallies in bear markets can be violent but they can also be brief like the reversal rally on Oct. 10, with a low of Dow (DJI) 7,723 that ended the next day at 9,924.

Yesterday's pop from the closing low of Monday at Dow 8,176, which is thus far the lowest close of the bear market, reinforces the broader key support zone of 7,774 to 8,176 which results from the 2002-2003 bottom. But even more importantly, this rally focuses on the current pattern's important support at 8,176 and the resistance at the triple daily highs at 9,305.

So, yesterday was a win for the bulls -- but now they must break through Dow (DJI) 9,305 to confirm that an important low has been established.

Today's Trading Landscape

Earnings to be reported include: Earnings to be reported include: Acadia Realty Trust (AKR), Advance America Cash Advance Centers (AEA), Advance Auto Parts (AAP), Aetna (AET), AGCO (AG), Agnico-Eagle Mines Ltd (AEM), Allergan (AGN), Alliance Imaging (AIQ), Allied Waste Industries (AW), Allis-Chalmers Energy (ALY), Alpha Natural Resources (ANR), Alpharma (ALO), Ameriprise Financial (AMP), Amkor Technology (AMKR), Australian Pharmaceutical Industries (API) and Auxilium Pharmaceuticals (AUXL).

Banco de Chile (BCH), Banner Corp (BANR), Berry Petroleum Co (BRY), BioMedRealty Trust (BMR), Blackboard (BBBB), BorgWarner (BWA) and Bryn Mawr Bank (BMTC).

CA (CA), Cabot (CBT), Cabot Oil & Gas Corp (COG), Cal Dive Int'l (DVR), California Water Service Group (CWT), Cardinal Health (CAH), Cedar Shopping Centers (CDR), Central European Media Enterprises (CETV), CEVA (CEVA), China Eastern Airlines (CEA), Cincinnati Financial Corp (CINF), Circor Int'l (CIR), Clarient (CLRT), Cliffs Natural Resources (CLF), Cognex (CGNX), Comcast Corp (CMCSA), Community Health Systems (CYH), Corning (GLW), Corporate Office Properties Trust (OFC) and Curtiss-Wright Corp (CW).

Deltic Timber (DEL), Dionex (DNEX), DPL (DPL), DTE Energy Co (DTE), Epicor Software (EPIC), Equity Residential (EQR), Famous Dave's of America (DAVE), Federal Realty Investment Trust (FRT), First Industrial Realty Trust (FR), First Mercury Financial Corp (FMR) and First Solar (FSLR).

General Cable Corp (BGC), General Maritime Corp (GMR), Gold Fields Ltd (GFI), Granite Construction (GVA), Grey Wolf (GW), GulfMark Offshore (GLF), Hanesbrands (HBI), Harman Int'l Industries (HAR), Hartford Financial Services (HIG), Hawaiian Holdings (HA), Hercules Offshore (HERO), Hess Corp (HES), Highwoods Properties (HIW) and Horace Mann Educators Corp (HMN).

International Coal Group (ICO), Inverness Medical Innovations (IMA), Invesco Ltd (IVZ), Jones Apparel Group (JNY), KB Financial Group (KB), Kemet (KEM), Kirby (KEX), Kraft Foods (KFT), K-Sea Transportation Partners L.P. (KSP), L-1 Identity Solutions (ID), Lantronix (LTRX), Lazard Ltd (LAZ), Legg Mason (LM), Magnetek (MAG), Marine Products Corp (MPX), MetLife (MET), MGM Mirage (MGM), Monaco Coach (MNC), Moody's Corp (MCO) and Murphy Oil Corp (MUR).

New York Community Bancorp (NYB), Newmont Mining Corp (NEM), Nexen (NXY), Noble Energy (NE), Nu Skin (NUS), Office Depot (ODP), Oil States Int'l (OIS), Orchids Paper Products Co Del (TIS), O'Reilly Automotive (ORLY) and Owens Corning (OC).

Polypore Int'l (PPO), Praxair (PX), Procter & Gamble Co (PG), Prudential Financial (PRU), Questar Corp (STR), Qwest Communications (Q), RehabCare Group (RHB), Rogers Corp (ROG) and RPC Inc. (RES).

Sangamo BioSciences (SGMO), Sanmina-SCI Corp (SANM), Sauer-Danfoss (SHS), Scripps Networks Interactive (SNI), Sealed Air (SEE), Semiconductor Manufacturing Int'l Corp (SMI), Shutterfly (SFLY), Silicon Laboratories (SLAB), Solutia (SOX), Sony Corp (SNY), SPX Corp.(SPW), Standex Int'l Corp (SXI), Stewart Information Services (STC) and Suncor Energy (SU).

TDK Corp (TDK), Tesoro Corp (TSO), Trex Co (TWP), Trinity Industries (TRN), Uroplasty (UPI), ValueClick (VCLK), Varian (VAR), Visa (V), Watson Pharmaceuticals (WPI), Westpac Banking Corp (WBK), Whiting Petroleum Corp (WLL), Wisconsin Energy Corp (WEC) and Wright Express Corp (WXS).

The following economic reports are due: September durable goods orders (the consensus expects negative 1.8%) and the Federal Open Market Committee (FOMC) interest-rate announcement at 2:15 p.m. Eastern, at which the Fed is expected to cut rates by 0.5%.

Comcast (CMCSA) has reported 24 cents versus an expected 22 cents, and Procter & Gamble (PG) beat Q1 estimates with $1.03 versus an expected 99 cents.

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Sam Collins is a registered, fee-based portfolio manager who may be contacted samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.