Thursday, April 23, 2009

Stocks Head Higher on Earnings News, Banking

It's a truly magical time to be trading in this market if you are one of the blissfully ignorant who merrily parade into stocks without regard to the past, present or future. Truth be told, I wish I were one of them, able to ignore unemployment claims which continue to rise unabated, blind to the tortuous machinations of the capital markets and with a positive, "can do" attitude about the American 21st century.

Had I been able to overlook the obvious strains on the national economy, I might have participated in this current rally. Instead, I have been either wrong or out of the market for the better part of the last two months, as, after plummeting by more than 50% in the past 18 months, stocks have rebounded positively and with no end in sight.

I suppose the minute I decide to go long, is when the markets will reverse course, thus I am staying on the sidelines for the time being.

Stocks were up moderately on all major indices, though the Dow seems stuck in place while the S&P and NASDAQ continue to lead the way. Apple (AAPL) and eBay (EBAY) led advances on the NASDAQ, though Microsoft reported after the bell the first quarterly decline in sales on a year-over-year basis in the company's 34-year history. Still, the company earned 39 cents per share after charges, which met analyst estimates and the stock traded 3% higher in the after-hours.

Dow 7,957.06, +70.49 (0.89%)
NASDAQ 1,652.21, +6.09 (0.37%)
S&P 500 851.92, +8.37 (0.99%)
NYSE Composite 5,372.10, +81.49 (1.54%)

As stocks continued their ascent, market internals did not conform to the headline numbers. Overall, advancing issues barely nudged past decliners, 3267-3143, with the bulk of the losers on the NASDAQ. Once again, there were more new lows than new highs, 62-20, continuing the long-standing bias in that indicator. Volume was solid, in line with recent days.

NYSE Volume 1,566,731,000
NASDAQ Volume 2,485,417,000

The session was somewhat volatile, though in a narrow range. All of the indices spent some time in the red, and most of the day's gains were posted in the final half-hour. It's a day-trader's market, and all of the money is being made on the buy side.

Over in commodities, oil gained 65 cents, to $49.50, while other energy components - such as natural gas - finished with losses. Foodstuffs were moderately lower overall, while the precious metals continued to advance. Gold finished the day up $14.10, to $906.60 and silver was even more sought-after, gaining 45 cents, to $12.76.

The unabated market advance has now lasted 32 sessions, of which 14 have been to the downside, though a good number of them - 8 - have been minor, five of those being marginal losses of less than 50 points on the Dow. The 18 sessions which showed gains were far more robust, though many of those occurred in the early stages of the rally, in mid-March, when the Dow galloped ahead 1350 points in a span of ten sessions. The past 22 sessions have seen a top (just 290 points higher) and retreat on the Dow, putting the widely-watched index, as of today, just 182 points above the high-water mark of 7775 reached on March 23.

Noting the slowdown in the advance, a breakout to the upside is about as plausible now as a downturn. About 10 days ago, I mentioned that stocks would trade in a sideways manner, which is essentially what's going on, though there have been notable gains in technology, banking and other sectors during recent days.

All of the major indices are actually exhibiting the same pattern, although the NASDAQ has outperformed them all. The NASDAQ charts are somewhat troubling, however, as the appearance of multiple trading gaps have been a feature. The index has been boosted both higher and lower off previous day's closes, but gaps are significant signs of volatility and uncertainty, and sooner or later, all of them get filled. Just how long that process will take depends to a large extent on economic conditions, and reaction to them. Some say investors making money today are in denial of reality, while bulls - ever positive - point to various "signs" of improvement, and the notion that the banking crisis is not as severe as some believe.

Who is eventually proven right will likely take some time, though it certainly appears that there are good arguments on both the bullish and bearish side. One feature that's been particularly interesting - I'm afraid to call it anything other than that - is how many stocks are reporting lower overall revenues and declining growth but still meeting lowered expectations and being bid higher. Is the confidence in these companies misplaced, or are buyers stepping in at lowered valuations, seeing real bargains? It's probably a little bit of each, taken on a case-by-case basis.

Tomorrow's trade is likely to be indecisive, but the last week of April and the first one of May should produce some idea of direction. Chrysler's deadline is less than a week away, GM's future continues to be cloudy, the results of the bank stress tests are due May 4, April employment figures will provide more insight and the government's initial estimate of first quarter GDP are all on the table over the coming fortnight. It figures to be quite the wild ride.

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