Tuesday, September 8, 2009

September Swoon? Think Again

US stocks made good gains on the first full day of post-holiday trading. Seemingly, not enough investors received notice that September is a bad month for stocks. Notwithstanding last year's debacle, it may take iron wills to keep the current rally going, though after a brief pullback in the prior week, the major indices seem to have shaken off much of the pessimism being preached at the school of the short. In fact, the one big down day seems to have been simply repositioning by large traders, who took profits and shifted risk from one sector to another.

While the rally of Friday just past may have been tied to some short-covering in advance of the three-day weekend, there was little doubt about the direction on Tuesday as the Dow, NASDAQ and S&P all opened positive and remained to the upside throughout the session. The Dow ended within shouting distance of the high for the year, which is 9580.63, achieved on August 27.

In the broader markets, the gains were substantial, with the NYSE Composite sporting a 1.34% increase on the day. The NASDAQ closed at an 11-month high.

Dow 9,497.34, +56.07 (0.59%)
NASDAQ 2,037.77, +18.99 (0.94%)
S&P 500 1,025.39, +8.99 (0.88%)
NYSE Composite 6,726.07, +88.94 (1.34%)

Simple indicators are shouting "buy" again, as advancers beat down decliners, 4478-1926, and new highs outpaced new lows, 271-58. The high-low indicator has headed in a direction that has not been seen in over two years, where the number of daily new highs have exceeded new lows for more than a month without a break. As simple an indicator as can be imagined, this one has been reliably predicting rises and falls since August of 2007 and it is now saying that the rally will continue. Even though the pace may be slow, it shows every sign that it will be steady. Volume, once again, was on the low side, though this has become the norm - around 2 billion shares on the NASDAQ and between 1.3 and 1.7 billion on the NYSE.

NYSE Volume 1,396,714,000
NASDAQ Volume 2,010,061,000

While stocks continued their climb for the third straight session, commodities were gaining in price as well. Crude oil surged $3.08, to $71.10; gold traded above $1000 for the first time in over a year, closing at $999.80, up $3.10. Silver has had an impressive run of late as well, closing today at $16.51, up another 23 cents.

Despite the howls from the doom-and-gloomers, all asset classes seem to be on the rise again as the world economies crawl back from the brink of economic catastrophe. Since price realization is a matter better handled by artists than statisticians, the maintenance of smoothly-functioning markets has brought back some level of speculation, though it has been extremely cautious over the past three to four weeks. Investors are still working with a backdrop of last fall and winter and even the crises of 9/11 and the dotcom bubble-bursting are still fresh in many psyches.

It will take some time before full optimism returns to markets and consumers alike, though by the time that occurs, most of the good gains will have been taken. The recent run up demonstrates that most traders believe the worst of the "depression-scare" is behind us. Conspiracy theorists will contend that the entire September surprise of 2008 was a massive swindle by the banks on the American public and designed to elect a Democratic president. They may be on to something, and, if correct, then only good times lie ahead for the US economy.

There is a mountain of debt to overcome, however, and, at the federal and state levels, that debt is still building. Government coffers are going to have to be replenished, and soon, before the aging populace - especially the fast-approaching retirees from the baby boomer generation - devours all accumulated wealth and leaves future generations high and dry. That scenario will take years to play out, though, and the best guesses by the geniuses in their ivory towers in NYC and DC are that the US economy will once more regain prominence.

Those discussions are better suited for late-evenings over beers and sandwiches. For now, the recovery seems to be well underway, with the best parts still ahead. We're now in the final month of the 3rd quarter. Expectations are high that the economy - as measured by GDP - will show a positive number for the quarter. As most seasoned players will concede, we won't know whether we're out a the recession until it's over, but there continues to be considerable signage alone recovery road to suggest that plus signs will stand in front of the next-released numbers.

As for the September theories, they seem not to apply presently. The conditions are vastly different than when most historic declines occurred. While some pullback seems inevitable, nothing really is, and the party continues.

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