Market Searches for Direction, Extends Gains

The major indices all finished the day on a positive note, but that was only half the story. Up by 2% (the Dow up 200 points) in early trading on unexpected gains in durable goods orders and new home sales.

But the real story was in the Treasury auction, which reportedly drew less demand than expected and induced the Federal Reserve to snatch up $7.5 billion in Treasuries maturing in the next seven to 10 years. That triggered a severe response on Wall Street, which commenced on a downward trajectory, with the Dow dropping from 7800 at 1:00 pm to the day's low at 7550 at 3:00 pm.

Concerned that the market would continue to sell-off and wipe out gains from Monday's historic 497-point rise, traders got busy in the final hour, boosting stocks back into positive territory. From 3:00 to 4:00 pm the Dow tacked on nearly 200 points, with some serious tape-painting in the final seven minutes, in which the Dow went from unchanged to the final close, up 89.84 points.

Dow 7,749.81, +89.84 (1.17%)
NASDAQ 1,528.95, +12.43 (0.82%)
S&P 500 813.88, +7.63 (0.95%)
NYSE Composite 5,127.00, +62.67 (1.24%)

The level of participation is particularly worrisome to the Treasury and the Obama administration, which is seeking to sell a record $94 billion in Treasuries this week. A similar auction in Great Britain received such poor participation that the auction was widely considered a failure. Nations worldwide need to finance large amounts of debt, but all are dwarfed by the quantity the US government plans to sell this year, roughly triple the amount auctioned in 2008.

Additionally, the figures for February new home sales (337,000) were tempered by lower prices and the fact that the number is still 41% below last year's already depressed levels. Ditto the durable goods report, which showed a gain of 3.9%, as more than half of the purchases were made by the Department of Defense. Thus, the markets were rather confused: at first euphoric, then sullen, and finally, covering short positions and reinforcing the bid in the final hour.

At the end of the day, only one thing was for sure: that the market is in serious need of new direction. An underlying element of fear is prevalent, even though stocks - from March 11 to March 24 - put on their best 10-day showing since 1938, according to Addison Wiggins at the dailyreckoning.com.

Advancing issues eventually held sway over decliners, 4417-2112. New lows beat out new highs once again, 123-30. Volume was spectacular, near the highest of this current three-week period.

NYSE Volume 1,773,648,000
NASDAQ Volume 2,494,052,000

Commodities were mixed. Crude oil futures for May delivery fell $1.21, to $52.77 on a report that US supplies were at 16-year highs. Gold gained $12.00, to $938.00. Silver added 8 cents to finish at $13.44.

With so much confusion, it seems difficult for stocks to continue their gains much longer. Today's initial thrust resulted in an evident topping pattern and the subsequent decline broke through various support levels before the manipulated rally nearing the close. Much of the late-day gains were led by JP Morgan Chase (JPM) and other financial stocks which have fueled the rally of late.

Prior to the opening bell tomorrow, traders will digest two important pieces of economic data, both releases scheduled for 8:30 am: initial unemployment claims and the final 4th quarter 2008 GDP, which is expected to be recorded as worse than previous estimates. The last GDP estimate was a decline of 6.5%. Tomorrow's number figures to be closer to 6.8%.

With that, my apologies for yesterday's truncated post, though the interface issues have now been resolved. Be on your toes early. This market could run either way, or, like today, cascade in both directions.