Tuesday, September 15, 2009

Double Top Breakout for Stocks; Silver Tops $17

The markets continued to tack on gains Monday and Tuesday, confirming a double top breakout on the latter, promising more gains straight ahead. Tuesday's trade was touch-and-go early on, as the market digested solid August retail sales figures (up 2.7%, +1.1 ex-autos) and an uptick in the Producer's Price Index (PPI), which was up a solid 1.7% (+0.2% core). What gave investor's caution was Best Buy's (BBY) quarterly report, in which the nation's largest electronics retailer missed earnings estimates - 0.37 actual vs. 0.42 estimate - but raised guidance for the year.

Expecting much more from the retailer, especially since Best Buy was poised to benefit greatly from the demise of Circuit City, which went bankrupt and closed all its stores earlier this year, the stock sold off, losing 2.09, to $38.32, a dip of more than 5%. The overall market viewed this as another sign that the consumer is not yet ready to open the wallet for discretionary purchases such as LCD TVs, game consoles and other electronic and high-ticket items.

Shortly after 10:00 am, during a question-and-answer period, Fed Chairman Ben Bernanke let it slip that the recession was "probably over" which gave everyone a small boost of confidence. Markets really didn't begin to take off until after President Barack Obama's first speech of the day, which ended about 11:30 am. It was as though traders were waiting to see if eithre Bernanke or Obama would drop a verbal bomb. When they didn't, it was off to the races in a broad-based strong rally.

Dow 9,683.41, +56.61 (0.59%)
NASDAQ 2,102.64, +10.86 (0.52%)
S&P 500 1,052.63, +3.29 (0.31%)
NYSE Composite 6,917.07, +37.08 (0.54%)

Advancing issues outpaced decliners by a solid margin, 4183-2254, while new highs registered their highest one-day total since October 2007, at 412. There were 87 new lows, with only 8 of them appearing on the NASDAQ. Volume was once again above normal, as investors rushed to get into equities. The rally continued almost through the end of the session, with stocks closing near their highs. Longer term, the current bull run is more than six months old, though the performance for September, thus far, has been exceptional and in strong opposition to many who were calling for a pull-back.

NYSE Volume 1,496,974,000
NASDAQ Volume 2,400,533,000

Commodities got in on the action as well. Crude oil for October delivery gained $2.07, to $70.93. Gold rebounded, up $5.20, to $1,006.30, but silver was the star of the day, picking up 38 cents per ounce, to $17.00, and higher after the close in New York.

In general terms, this six-month-old rally is getting a little bit winded, as daily gains are measured and not overly large, though by and large the bull market seems to be intact and booming, though a blow-off top could occur at any stage, now that the double top has been confirmed over 9650 on the Dow.

Investors have been taking some money off the table, though much seems to be going right back in to the market, either in sector rotation or buying the same shares on dips, even though there hasn't been much of a break in the upside action.

All the data and speeches by the Fed Chair and the President have set a very positive tone heading into fall and the upcoming earnings season. The downside is that any disappointments will likely be dealt with in rather harsh manners. Companies which fail to meet expectations in the coming weeks could see their share prices slashed without mercy. On the other hand, data continues to point towards recovery. The issue is whether companies can extract profits as a normal function of business, since the past two quarters' profits have come largely from cost-cutting.

Housing and employment continue to underpin the markets, keeping a lid loosely over stocks, for now.

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