Sam Collins

S&P Signals a Bear-Market Rally

by Sam Collins   11/05/08

It seems that while Americans voted for their candidate of choice yesterday, they also voted with their pocketbooks as stocks took off for a big election-day rally. Every member of the Dow (DJI) rose except Hewlett Packard (HPQ), which fell less than 1%. The charge was led by General Electric (GE), up 7.6%, which was also the best performer of the S&P 500 (SPX).

The best sector performers were energy, financials and materials. The better-quality stocks of each sector did well: Chevron (CVX) rose 6.1%, American Express (AXP) gained 5.3% and United Technologies (UTX) was up 5.53%.

Trading started off on a high note when, before the opening, Archer Daniels Midland (ADM) reported Q1 earnings of $1.63 versus estimates of 67 cents. MasterCard Inc. (MA) rose 18.3% one day after it reported a large settlement. With a big increase in revenues, solid global-dollar volume growth was up 12.3% versus an expected 10.5%.

At the close, the Dow Jones Industrial Average (DJI) was up 305 points to 9,625, the S&P 500 (SPX) gained 39 points to 1,006 and the Nasdaq (NASD) rose 54 points, closing at 1,780.

The New York Stock Exchange traded 1.3 billion shares with advancers ahead by 4-to-1. On the Nasdaq, 937 million shares traded with advancers there ahead by almost 2-to-1.

The December crude oil contract rose $6.62 to $70.53 a barrel and the Amex Energy SPDR (XLE) gained $3.21, closing at $53.02.

Gold (December contract) jumped $30.50 to $757.30 per troy ounce, and the PHLX Gold/Silver Index (XAU) gained $11.99 to close at $93.13.

What the Markets Are Saying

Without hesitation, the S&P 500 (SPX) blasted through the stubborn resistance at 985 within minutes of Tuesday's opening -- signaling that the first real rally of a destructive bear market had begun.

But the move up actually started seven sessions ago, when stocks reversed from an S&P low of 845 on Oct. 28. Since then, it is up 18.9% and appears to be headed to our objective of S&P 1,100 which corresponds to Dow (DJI) 10,500.

Volume was again relatively light, with just 1.3 billion shares traded on the Big Board, but that could be a function of many investors taking election day off as a holiday.

Some of our internal indicators, such as the Moving Average Convergence/Divergence (MACD) and stochastic are getting a bit overbought, but even the slightest correction could bring them back to normal. And the CBOE Volatility Index (VIX) fell another six points yesterday, down from a high of 96.4 just eight days ago, telling us that investors are rather less emotional with the market at these levels and that could move the advance along nicely even from these higher levels.

For now, we'll enjoy the rally with our favorite Exchange-Traded Fund (ETF) but will keep an eye out for any dangerous signals like a daily reversal to shake us back to reality. Any pullbacks should be supported first at the breakout level of SPX 985 and then 930.

This morning, the LIBOR rate, or the rate at which banks loan each other money, is down two basis points this morning. Time Warner (TWX) reported Q3 results of 30 cents versus an expected 27 cents a share.

Today's Trading Landscape

Earnings to be reported include: A.P. Pharma (APPA), AAON (AAON), ACCO Brands (ABD), Activision Blizzard (ATVI), Agrium (AGU), Alnylam Pharmaceuticals (ALNY), Alon USA Energy (ALJ), Alpha Pro Tech Ltd (APT), Ambac Financial Group (ABK), Amdocs Ltd (DOX), American Equity Investment Life Holding Co (AEL), American Water Works Co (AWK), Aqua America (WTR), ArcelorMittal (MT), Ashford Hospitality Trust (AHT) and Avalonbay Communities (AVB).

Becton, Dickinson & Co (BDX), Bill Barrett Corp (BBG), Black Hills Corp (BKH), Blount Int'l (BLT), Brandywine Realty Trust (BDN), Braskem S.A. (BAK), Brigham Exploration Co (BEXP) and Brightpoint (CELL).

CapitalSource (CSE), CenterPoint Energy (CNP), Central Vermont Public Service (CV), Champion Enterprises (CHB), Charles River Laboratories (CRL), Checkpoint Systems (CKP), Churchill Downs (CHDN), Cisco Systems (CSCO), Clayton Williams Energy (CWEI), Clean Harbors (CLHB), Cleco Corp (CNL), CMS Energy Corp (CMS), Cogent (COGT), Cognizant Technology Solutions (CTSH), Coherent (COHR), Conseco (CNO), Consolidated Graphics (CGX), Copano Energy LLC (CPNO), Corinthian Colleges (COCO), Corpbanca (BCA), Cousins Properties (CUZ), Cox Radio (CXR), CPFL Energia (CPL), Credicorp (BAP) and Crown Castle Int'l (CCI).

Devon Energy Corp (DVN), Digital Realty Trust (DLR), Dollar Thrifty Automotive Group (DTG), Domtar Corp (UFS), Duke Energy Corp (DUK), Dyncorp Int'l (DCP), Dynex Capital (DX), Eagle Bulk Shipping (EGLE), El Paso Electric (EE), Enbridge (ENB) and ExpressJet Holdings (XJT).

Fair Isaac Corp (FIC), First Marblehead Corp (FMD), Five Star Quality Care (FVE), Forestar Real Estate Group (FOR), FTI Consulting (FCN), Gaylord Entertainment Co (GET), General Growth Properties (GGP), Georgia Gulf (GGC), Gerdau AmeriSteel Corp (GNA), Global Cash Access (GCA), GMAC LLC (GJM), Goodrich Petroleum (GDP), Gray Television (GTN), Great Plains Energy (GXP), Great Wolf Resorts (WOLF) and Guaranty Financial Group (GFG).

Harvard Bioscience (HBIO), Haverty Furniture (HVT), Healthsouth (HLS), Hill Int'l (HIL), Hollywood Media (HOLL), Home Properties (HME), Hudson Technologies (HDSN), Hughes Communications (HUGH), IAC (IACI), iMergent (IIG), Infospace (INSP), Interstate Hotels & Resorts (IHR), Iowa Telecommunications Services (IWA), ITC Holdings Corp (ITC) and J&J Snack Foods (JJSF).

Kaboose (KAB), Kimco Realty Corp (KIM), Kinross Gold (KGC), Kodiak Oil & Gas Corp (KOG), LTC Properties (LTC), Luna Innovations (LUNA), Maidenform Brands (MFB), Marsh & McLennan Companies (MMC), MasTec (MTZ), MBIA (MBI), McDermott Int'l (MDR), Medco Health Solutions (MHS), Mentor (MENT), MetroPCS Communications (PCS), MF Global (MF), MHI Hospitality Corp (MDH), Miller Industries (MLR), Molson Coors Brewing Co (TAP) and Morton's Restaurant Group (MRT).

National Financial Partners (NFP), Nationwide Financial Services (NFS), Natural Gas Services Group (NGS), Neenah Paper (NP), News Corp (NWS), Noble Int'l (NOBL), Omega HealthCare Investors (OHI), ONEOK Inc. (OKE).

Parker Drilling (PKD), Peco II (PII), Pediatrix Medical Group (PDX), Pengrowth Energy Trust (PGH), Penn Virginia (PVG), Penn Virginia Resources (PENN), PNM Resources (PNM), Polo Ralph Lauren Corp (PL), Polyone Corp (POL), Quanta Services (PWR), Quicksilver Gas Services LP (KGS) and Quicksilver Resources (KWK).

Rackspace Hosting (RAX), Radian Group (RDN), RAE Systems (RAE), RAIT Financial Trust (RAS), Red Lion Hotels Corp (RLH), Redwood Trust (RWT), Relm Wireless Corp (RWC), Resource Capital Corp (RSO), Revlon (REV), RR Donnelley (RRD) and Ruth's Hospitality Group (RUTH).

Sara Lee (SLE), Service Corporation Int'l (SCI), SkyWest (SKYW), Sonic Solutions (SNIC), Sovran Self Storage (SSS), Speedway Motorsports (TRK), SRA Int'l (SRX), Standard Parking (STAN), Strategic Hotels and Resorts (BEE), Sunoco (SUN), Syniverse Technologies (SVR) and Systemax (SYX).

Telephone Data (DATA), Textainer Group Holdings Ltd (TGH), Time Warner Cable (TWC), Time Warner (TWC), Total (TOT), Trailer Bridge (TRBR), Transglobe Energy Corp (TGA), Transocean (RIG), TRC Companies (TRR), Trico Marine Services (TRMA), Vulcan Materials (VMC), Watson Wyatt Worldwide (WW), Whole Foods Market (WFMI) and Willbros Group (WG).

The following economic reports are due today: October American Data Processing (ADP) Employment Report (the consensus expects negative 100,000) and the October Institute for Supply Management (ISM) Non-Manufacturing Composite Index.

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