Sam Collins

Protect Against Profit-Taking

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Even after some late afternoon profit-taking yesterday, the stock market made broad advances with big gains in gold, commodity producers, and other commodity-related companies. The catalyst for such a strong day in stocks was the surprising hike in interest rates by the Australia National Bank, taking their key lending rate to 3.25%, up 25 basis points.

Multinationals did especially well as the U.S. dollar plummeted. The Dollar Index fell 0.5% as investors moved into stocks that could provide a hedge against future inflation. The dollar fell 0.45% versus the euro, and was lower against every major currency except the British pound. Gold leapt to a new intraday high of $1,045 an ounce, and gold mining stocks provided some of the best returns of all equities on the board.

After the late round of profit-taking, an even later rally overcame most of the pullback, and stocks closed with a rush of buying. Financial stocks were victims of sellers following a strong showing on Monday. But, even so, the financial stocks closed with a 1.2% gain, and the overall market closed strong for the second consecutive day. The two-day run produced a gain of 2.9%, the best performance in over a month.

At the close, the Dow Jones Industrial Average (DJI) was up 132 points to 9,731, the S&P 500 (SPX) gained 14 points at 1,055, and the Nasdaq (NASD) rose to 2,104, up 35 points. 

Volume on the NYSE was still low compared to most days with large gains, with just 1.2 billion shares trading. But breadth was broad as advancers outnumbered decliners by 4-to-1. The Nasdaq traded 729 million shares with advancers there ahead by more than 3-to-1.

As noted, the weaker dollar caused a rush to buy commodities, and so November crude oil closed at $70.88, up 47 cents. The Energy Select Sector SPDR (XLE) jumped $1.26 to $54.38. 

But gold was the big winner yesterday, setting a new Comex most-active-contract record. December gold closed at $1,039.70, up $21.90, and the PHLX Gold/Silver Index (XAU) closed at $172.26, up $9.93, just shy of a new record closing high.

What the Markets Are Saying

With a low volume broad advance there is always the chance of a violent reactive round of profit-taking. But momentum is now so strong and breadth so deep that a serious reversal is very unlikely.