Monday, September 28, 2009

Plenty of Momentum for Gains

A week ago, two weeks ago, four weeks ago, every mouth with an opinion on the stock market was calling for a correction of 5-10%, except, possibly, Laszlo Berinyi of Berinyi Associates, who said that a correction was not necessarily in the cards, and pointed out, on CNBC (sorry, I do not have the actual clip or reference), that analysts had not done their homework and that he expected the Dow Jones Industrials to reach 10,000 this month.

Well, even though this month, September, is nearly over, Mr. Berinyi may have been on to something. After last week's three-day decline, in which the major averages dropped between 2 and 4%, the last few days of the month have - all of a sudden - taken on a new, bullish tone. There are reasons aplenty for the abrupt upward keel that we witnessed on Monday, not the least of which having much to do with world politics. The far East stock indices such as the Shanghai, Nikkei and Hang Seng were all off sharply Monday morning, boding ill for their Western counterparts, but, miraculously, as Easterners awoke to a fresh week of market action, Europe's bourses were up sharply, and index futures were singing the praises of free market capitalism.

Merger deals were in the works with Xerox and Abbot Labs leading the charge, so when the US markets opened, traders wre buying fistfuls of stocks, from energy to industrials, to consumer cyclicals to health care. The Dow was up 100 points in the first fifteen minutes, and churned from there in a tight range.

While the rally will be pooh-poohed by the bears who will point out that volume was significantly lower due to observance of Yom Kippur, those holding their Torahs today were not missing from the rally. Surely they had issued instructions that were carried out with haste in the early going.

Dow 9,789.36, +124.17 (1.28%)
NASDAQ 2,130.74, +39.82 (1.90%)
S&P 500 1,062.98, +18.60 (1.78%)
NYSE Composite 6,939.76, +116.25 (1.70%)

On the day, advancers put decliners on notice of direction, beating them, 4972-1462, a 3-1 margin. New highs beat new lows, 318-55, expanding the gap and reducing the gross number of stocks hitting fresh lows. As mentioned above, volume was low, due to a Jewish holiday, but that fact is insignificant.

There is still untapped value in many stocks, earnings season is less than a week away, the economy is expanding once again, and sentiment is high. There is every reason to believe that stocks will continue their bull run in the near term.

NYSE Volume 4,399,573,500
NASDAQ Volume 1,931,896,625

Geo-politics dictates that the United States show strength following the G-20, especially in the face of new threats emerging from Iran. Those threats are nothing more than banter, rather than actual posturing for nuclear armageddon, meaning that industry must, and will, carry onward without interruption.

Commodities got the Monday-morning memo as well. with oil rebounding 82 cents, to $66.84, gold higher by $2.50, to $994.10, and silver up 14 cents, to $16.20. The commodity gains were modest as compared to those in equities, and for good reason: we are still struggling through a corrective, deflationary environment. Commodity and labor prices will continue to remain under pressure until companies can build up profits, inventory and a path to sustained growth. The economic recovery will be neither quick nor shallow. It will be as it should be, coming out of a severe crisis: long and vibrant. Company earnings are on track for their third consecutive quarter to the upside.

Investors were warned by the mass media to beware of the month of September. With just two days remaining, it appears that the worst fears have failed to materialize. One can only hope that more pundits and analysts warn about October.

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