Wednesday, September 16, 2009

Stocks Continue to Pop on Production; Gold Soars

There was no slowing down the upside freight train as the major indices posted their 8th gain in the past 9 sessions and third straight winner at mid-week.

All sectors were positive, led by conglomerates, financials, basic materials and capital goods. Economic news included improved industrial production, up 0.8% in August, with capacity utilization gaining to 69.6% from a revised July figure of 69.0. CPI was benign, up 0.4%, with the core number up 0.1. Continuing a string of positive economic data, investors clambered back into the markets for more of the financial feast currently unfolding.

That this rally has not only legs, but now, euphemistically, wings, and is soaring, is remarkable considering where we were just a year ago, on the brink of global financial collapse. Through whatever means, the Fed and Treasury, working alongside central banks from countries around the globe, managed to avert severity and bring markets back to functional, realistic levels. How much further economic recovery can bring the market at this juncture is still a bit problematic and stressing, though the general consensus has now shifted to extreme positivism.

At some point, the market will balk and give back some share of profits, but timing that event is a foolhardy endeavor. Those who blanch at the first signs of weakness are likely to leave money on the table as any downturn will probably be short-lived and small. While some are calling this a stock-pickers market it appears to be anything but, as shares of just about anything have participated in this rally. Companies with clean balance sheets, strong management and stable product or service lines have fared the best. Companies are once again executing on their business plans with the worst fears behind them. Any money that has not participated as of yet has missed some of the most substantial gains though there are surely more to come.

The absence of any competition for stocks is also fueling the rally. So long as the Fed keeps rates at zero, this kind of activity in markets is to be expected. Money must go somewhere and the best returns are currently in equities.

Dow 9,791.71, +108.30 (1.12%)
NASDAQ 2,133.15, +30.51 (1.45%)
S&P 500 1,068.76, +16.13 (1.53%)
NYSE Composite 7,038.14, +121.07 (1.75%)

Simple indicators confirmed the headline numbers from the averages. Gainers beat losers by the widest margin in weeks, 5009-1499, while new highs ramped up dramatically, to another multi-year daily high of 586. There were 97 new lows. Those high-low numbers should begin to become even more dramatic, as stocks retrace the collapse of last year. This trend has completely reversed, signifying a new, healthy, bull market. Volume on the day was also at elevated levels. Stocks are close to overheating, though nobody will sound an alarm when they do. The risk of another tumultuous collapse has been all but washed out. Confidence is returning in a very big way.

NYSE Volume 1,581,164,000
NASDAQ Volume 2,738,888,000

Commodities also joined in the fun. Oil kicked up another $1.58 at $72.51, but the metals were the real story, with gold gaining $13.90, to $1,020.20, and silver up another 43 cents, to $17.43. Gold is once again being viewed as a solid hedge against the declining US currency and all the government deficits and guarantees of financial institutions that have fueled the comeback. Gold could easily top $1200 in coming months as there is still a good deal of work to be done on the overall global economy. Even eventual dollar stability should not be able to stop the run in gold and silver through the next 12-18 months.

This rally train left the station long ago, and it's running at nearly full speed. Options players have also enjoyed a heyday, with expiration on Friday. With that in mind, a slight pullback for profit-taking would not be surprising, though, honestly, in this environment, it may only last a manner of minutes.

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