by Sam Collins 04/03/08
Bad news on Tuesday resulted in a market rally while good news (or, at least, better news) yesterday produced a small pullback in stock prices. After the monster April Fools' Day rally (the eighth-biggest day on record), it was normal for the market to digest the gains with some profit-taking.
The good news came from American Data Processing (ADP), which estimated that private payrolls rose 8,000 in March versus a decline of 18,000 in February; economists predicted a decline of 45,000. Further, the Commerce Department reported that February factory orders fell 1.3% versus an estimate of a 0.8% loss, but that report had little impact on trading.
However, testimony from Fed Chairman Ben Bernanke did influence the markets. Speaking on Capitol Hill, the chairman said that it is possible that the economy could be in a recession now but that it was not certain. Bernanke went on to say that the first half of the year is expected to be slow but that activity should pick up in the second half.
That testimony, as well as a report from the International Monetary Fund forecasting global GDP growth will fall to 3.7% from 4.1%, seemed to have the most impact on the markets.
Yesterday wasn't the wild day of trading that some predicted, but the markets fluctuated by about 140 points, with most of the gains occurring in the morning prior to the Fed chairman's testimony.
Energy stocks were up as a result of a gain in crude oil, but financial stocks were fairly strong and they closed mixed -- though most observers felt that after Tuesday's blow-out, a flat close in the group should be considered a real achievement.
General Motors (GM) was Wednesday's big winner of the blue chips, up 4.1%, and Best Buy (BBY) led the retail stocks, up 1.1%, as a result of a better outlook and higher Q4 numbers.
At the close yesterday, the Dow Jones Industrial Average (DJI) was off 49 points at 12,604, the S&P 500 (SPX) was off three points at 1,368 and the Nasdaq (NASD) fell just over a point, closing at 2,361.
The New York Stock Exchange traded 1.4 billion shares and on the Nasdaq (NASD), 890 million shares crossed. Advancers led decliners on both exchanges: The NYSE was ahead by 3-to-2 and Nasdaq was up 5-to-4.
Crude oil futures for May delivery closed at $104.83 a barrel, up $3.85, and the Amex Energy SPDR (XLE) gained $1.05 to close at $76.50. Gold futures continued their recovery, rising $12.40 to $900.20 an ounce, and the PHLX Gold/Silver Index (XAU) gained $7.43, closing at $180.30.
What the Markets Are Saying
Although it's not yet certain, the market may be in a bottoming process, and the financial stocks most likely have made their lows. The S&P 500 (SPX) has decisively closed above both its 20- and 50-day moving averages, but yesterday the "500" turned back from the big resistance zone at 1,375 to 1,406. Unless it can surmount that barrier and do it quickly, it will have formed a triple-top and will head down for another test of the lows at 1,270.
Most internal indicators are overbought and the sentiment indicators have turned more bullish but are not yet at dangerously high levels. Yesterday, the bulls hesitated following Tuesday's smashing victory, but they had better pick up the momentum if they are to keep the rally going.
The most convincing indicator of power is volume, so watch the upside volume numbers and the breadth. If the bulls are to punch above the triple-top at 1,396 (reached Feb. 1), 1,388 (reached Feb. 27) and 1,378 (reached April 2), they must pull upside volume of at least 2 billion shares on the NYSE with breadth at a minimum of 3-to-1. Anything less is an attack with light infantry.
It is time for a major assault or else the conflict could get bogged down between the January and March lows and the highs outlined above, and then go on for many more months.
Today's Trading Landscape
Earnings will be reported by Acuity Brands (AYI), Cascade Corp. (CAE), Constellation Brands (STZ), Hooker Furniture (HOFT), RPM International (RPM) and Schnitzer Steel (SCHN).
In terms of economic reports, the March Institute for Supply Management (ISM) Non-Manufacturing is due today (the consensus expects 48.5), as well as the March initial jobless claims figures (the consensus expects 360,000).
There's no doubt the focus will be on every word uttered by Chairman Bernanke as he winds up his testimony on Capitol Hill today. After he's finished, the spotlight will shift to Friday and the very important jobs numbers.
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'Irrational exuberance' has hit the energy markets. Be cautious about new positions in the sector.
Tuesday could have provided a pivot point as the SPX, the NASD and the DJI gave important signals.
Now under its 50-day moving average and its stochastic indicator undervalued, ENB looks like it could jump.
All eyes should be on the VIX and VXN for the buy signal (if one is to come).
AUY could break higher, but you should limit risk with a stop-loss.
