Monday, November 2, 2009

Markets Remain Volatile Despite Solid Economic Reports

The extreme volatility which reappeared last week was back again on Monday, as stocks whipsawed though an up-down-up session, with the major indices finally deciding on a positive close at the end of the day.

After a major sell-off last Friday, stocks started out modestly positive, except for the NASDAQ, which has been a laggard recently. Once data on construction spending, pending home sales and the ISM Index came out at 10:00 am, all of the indices moved markedly higher, with the Dow sporting a gain of more than 140 points.

Construction spending for September registered an increase of 0.8%, blasting estimates for a decline of 0.2%. Pending home sales were up 6.1%, following a reading of +6.4% in August, regarded as an impressive string of increases in the pressured real estate market.

The ISM Index was the real popper of the grouping, however, with the October reading coming in at 55.7, after a solid showing of 52.6 in September.

Around noon, rumors that the US government was seeking to get back its money owed through the TARP program from Citigroup (C) rattled the markets, sending all of the indices temporarily into negative territory around 1:00 pm. Through the remainder of the afternoon, stocks vacillated and moved slightly higher, registering shaky, but modest gains at the close.

Dow 9,789.21, +76.48 (0.79%)
NASDAQ 2,049.20, +4.09 (0.20%)
S&P 500 1,042.88, +6.69 (0.65%)
NYSE Composite 6,784.94, +45.49 (0.67%)

Simple indicators displayed the confusion quite adequately. 3309 stocks advanced, while 3190 declined. There were 78 new highs, but 103 new lows. These figures indicate that the market is unable to determine direction, despite strong signs of economic recovery, probably due to many individual issues being overpriced.

Volume was steady, in line with previous sessions. There still has not been a spike in volume on a positive day, though with the increased volatility, it would be difficult to ascertain whether or not the volume was a contributor to overall gains. Taking today, for instance, up and down volume were virtually even, so it would be difficult to say that any of it was influential one way or the other.

NYSE Volume 7,318,034,000
NASDAQ Volume 2,340,403,500

Commodities took advantage of the weaker dollar to advance. Oil advanced $1.13, to $78.13. Gold was up $13.60, to 1,054.00, and silver added 19 cents, closing at $16.44.

As the number of companies reporting 3rd quarter earnings slows - over 80% of the S&P 500 have already reported - investors will have to rely on economic data and events to move markets. On Wednesday the FOMC of the Federal Reserve issues a policy statement, in which the Fed is widely expected to keep key interest rates the same, though some analysts are looking for a change in wording, especially where the Fed says they expect to keep rates low for "an extended period." A change in that wording could signal that the fed sees signs that it is time to tighten, or raise, interest rates, a move which could roil markets.

Before that, auto sales data for October is due out on Tuesday. Also on Wednesday, ADP issues their montly reading on private sector employment for October, a precursor to Friday's Non-farms payroll report.

Marathon Oil (MRO), Polo Ralph Lauren (RL) and European financial giant UBS (UBS) report prior to tomorrow's opening bell. Tech bellwether Cisco Systems (CSCO) reports after the close on Wednesday.

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