by Sam Collins 03/24/08
On Thursday, blue-chip financial stocks opened strong following an upgrade of Fannie Mae (FNM) and Freddie Mac (FRE) by a key rating agency.
Then the financial sector and the broader market picked up more buyers when the New York Fed announced plans to modify its new Term Securities Lending Facility (TSFL) to allow "schedule 2" collateral instead of "schedule 1." This change allows the Fed to lend banks highly liquid Treasury securities in exchange for lesser-quality assets and signals that it is willing to take aggressive action to avoid a liquidity crisis.
Earnings from giant General Electric (GE), which posted a 5.3% gain resulting from a "Buy" recommendation from Merrill Lynch (MER), also boosted the market. And Intel (INTC) contributed higher prices in technology stocks with a dividend increase of 10% that moved INTC 3% higher. A big, new issue, Visa Inc. (V), also did well, gaining almost 14% just one day after the credit-card company made its market debut.
At the close Thursday, the Dow Jones Industrial Average (DJI) gained 262 points to end at 12,361, the S&P 500 (SPX) was up 31 points at 1,330, and the Nasdaq (NASD) gained 48 points to close at 2,258.
Volume was very heavy with 6.1 billion shares reportedy trading on the New York Stock Exchange (later that was corrected to 2.77 billion shares) and 2.7 billion crossed the Nasdaq (NASD), with advancers ahead on the NYSE by 3-to-1. On the Nasdaq (NASD), advancers were ahead of decliners by 2-to-1.
A sharp broader-based downturn in commodities futures no doubt contributed to much of the gain in equities, as the new spot month for crude oil futures (May) closed down 70 cents to $101.84 a barrel, and the Amex Energy SPDR (XLE) gained 11 cents and closed at $70.81. Gold (April contract) fell $25.30, ending at $920 per troy ounce, and the PHLX Gold/Silver Index (XAU) fell $6.15 to $172.01.
What the Markets Are Saying
On Thursday, the bulls made an impressive stand as they again managed to avoid a breakdown of the important support at the S&P 500's (SPX) Jan. 23 intraday low of 1,270. The volume was very heavy, but much of that had to do with the expiration of the March options series, weakness in commodities, and the long Easter weekend.
Breadth, always an important indicator of investor sentiment and market direction, came in at a positive 3-to-1 on the Big Board and 2-to-1 on the Nasdaq (NASD), and with normal levels of volume that would be bullish. But for an ultra-high volume day, it shows a lot of match-offs and thus the significance of the high volume is diminished.
If the bulls are to survive the next round of selling, they must convincingly pound their way through the massive resistance at the old 1,375 to 1,407 zone and, before that, the 50-day moving average at 1,345.
We are always ready to embrace a new bull market, but one bounce -- as spectacular as it may be -- does not qualify as an indicator of a major change in trend. In fact, so far there is not a single major index that has turned higher.
The Dow Industrials (DJI) -- along with the S&P 500 (SPX) and the NYSE Composite (NYA)-- are still in a steep downtrend. Each is experiencing a short-term rally, which for the Dow (DJI) must exceed 12,700 or so to break into a near-term uptrend. It is a long way from its 200-day moving average, now at 13,200, which most technicians agree might signal a change in trend if it's broken.
As for the sell-off in commodities futures, it would be very unusual for three days of selling to reverse major trends that have taken years to develop. But futures contracts are very volatile and most were very overbought at the beginning of last week. I'll provide analysis later this week on the precious metals charts.
Today's Trading Landscape
Earnings will be reported today from 3Com (COMS), A.C. Moore Arts & Crafts (ACMR), Feldman Mall Properties (FMP), Hastings Entertainment (HAST), InPlay Technologies (NPLA), Philips-Van Heusen (PVH), RadNet (RDNT), Sonic (SONC), Tiffany (TIF), Universal Power Group (UPG) and Walgreen (WAG).
The only economic report due is existing home sales for February, and the consensus expects 4.85 million.
The Bear Stearns (BSC) takeover by JPMorgan Chase (JPM) is stalled because Bear's stockholders are demanding more than $2 a share for their stock. But the market's focus will be on commodities today, as crude is off about $1 a barrel this morning and gold continues to slip while the U.S. dollar is higher.
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The response to the Fed's interest rate cut led to key reversals in the DJI and the SPX.
In the long term, CSCO could run to new highs.
