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Quiet Trading Day Yields New Highs on S&P, Dow

Yesterday, as reported below, the marketeers sought confirmation for the new closing highs on the Dow Jones Industrials, and today, confirmation is exactly what was provided by the S&P 500, which finished just a fraction above the old closing high of 1097.91, at 1098.50, sufficient to keep rally hopes alive for the near term.

While confirmation by the S&P won't satisfy the purist sensibilities of the Dow Theorists in the crowd, it's a good enough finish on a very slow trading day to keep confidence in the ranks of traders, investors and speculators. Oddly enough, the brain trust at CNBC completely missed the data, not even reporting it, focusing instead on earnings from Applied Materials (AMAT) - which were outlandishly good, by the way - and the aquisition of 3Com (COMS) by tech giant Hewlett Packard (HPQ).

To the technicians among us, AMAT's earnings and the HP news don't even come close to the importance of index confirmation, and it's a testament to the shoddiness of reportage by the financial media. (Last night, I tried to watch Fox's Financial Network and was as revolted by that as I was by their political coverage. Just what does Ann Coulter know about economics? She was one of the panelists on one of their shows. I won't be tuning into that pile of garbage again soon, as I much prefer the wit and wisdom of Bloomberg's Bernie Lo (pictured at right), host of Asia Confidential, for my late-night viewing.)

Getting back to Dow Theory, we anxiously await confirmation of the new highs - and the next leg of this delicious rally - by the Dow Jones Transportation Index (^DJT), which almost turned the trick on Veteran's Day, closing at 3988.00, a mere 57 points away from the magic number. If the Transports repeat today's performance, we'll have double confirmation in hand heading into Friday's trading.

Once again, the paucity of news and/or corporate earnings reports left traders to their own wits, largely battling the ravages of a runaway dollar index, which nearly scuttled the entire affair. One should not be too concerned with a rising dollar longer term, however much the government sock puppets like Tim Geithner tout a strong dollar policy. Our intrepid Treasury Secretary, doing front work for the President, said, "I believe deeply that it's very important to the United States, to the economic health of the United States, that we maintain a strong dollar," yesterday when meeting with Japanese officials in Tokyo. If you listen closely, you can actually hear the polite snickering by the Japanese finance ministers.

Dow 10,291.26, +44.29 (0.43%)
NASDAQ 2,166.90, +15.82 (0.74%)
S&P 500 1,098.51, +5.50 (0.50%)
NYSE Composite 7,155.36, +28.94 (0.41%)

Advancing issues beat decliners, 3654-2181, and new highs maintained their distinct advantage over new lows, 405-75. Volume was once again pathetic, the lowest of the month so far, due partially to the holiday and partially to lack of interest from money managers who have already locked in gains of 30-40% or more for the year. Low volume has been a signature of this rally for the entire duration, so it should be no surprise that markets continue higher for the rest of the year without intense participation. It just makes it easier for those who were late to the party to catch up with the real front-runners.

NYSE Volume 4,509,091,000
NASDAQ Volume 1,873,781,875

Commodities were discounting the unusual rise in the dollar, though hardly. Oil paid the most attention, gaining just 23 cents to finish in NY at $79.28. Gold ramped higher, up $12.00 to a new record high of $1,114.50. Silver finally got some attention, adding 32 cents, to $17.55.

The final word on this newest leg of the rally is that it may be a quick and powerful one, taking the Dow up to possibly the 10,800 level before the year is out. Gone is all the bearish talk of a 10-15% correction, the market just having completed its 5th 5% pull-back a little more than a week ago. All indications point toward higher finishes until Thanksgiving.

Desperately Seeking Confirmation

Following the new 52-week and 2009 highs set by the Dow Jones Industrial Average on Monday, investors were put into a quandary on Tuesday, one which will likely be resolved at some time this week. The question on the minds of most traders is whether or not the rally has sufficient energy to first, sustain current levels, and, secondly, to move to even higher ground in the immediate future.

In search of an answer to those questions, technical analysis should provide the most propitious resolution. From two to four separate indices should provide either confirmation or counterweight to the Dow's new closing highs. The most important of these is probably the S&P 500, which, on Monday, closed at less than 5 points off its own closing high of 1097.91, which was the level recorded on October 19. It may be splitting hairs, but a close above that is a vital element, necessary to move the overall indices higher.

Next on the list is the Dow Jones Transportation Average (^DJT) which made its own closing high (4045.11) on October 20, but has since backed well off, finishing today more than 100 points lower than that level (3916.91). A certain paradox comes into play with the relation to the Industrials, as their prior peak was on October 19 (1092.19) and was confirmed by the Transports the following day.

So, the Industrials have moved ahead, alone, and seek a partner for confirmation. One explanation is that the Dow moved in solitary fashion as a brief flight to quality and safety, and the fundamentals for the other parts of the market are not strong enough to keep pace. The Industrials are just 30 stocks, most of which are paying high quality dividends - taken together yielding better than 3.5% - whereas the S&P 500 is much broader (500 stocks). The Transportation index is comprised of just 20 stocks, a good number of them airlines, which have suffered badly through the economic downturn and have yet to recover. Thus, the confirmation may be a bit of a stretch at this juncture.

As a proxy for the airlines, consider Priceline.com (PCLN), the travel discounter, which today announced 3rd quarter operating results and blew away estimates, sending shares up more than 30 points (17%) on the news. This company might be more useful in determining the overall market strength of the Transports, being a much more efficient model than the airlines themselves. Also adding to the no-confirmation-needed argument is FedEx (FDX), which projected today that their busiest day this year - December 14 - would also be their busiest day EVER!

While FedEx is a component of the Dow Jones Transportation Index, Priceline.com is not, though maybe it's time for the Transportation index to "get up to speed" with the evolution of technology in transportation. Given that argument, the Transports would have blown through their previous highs and provided confirmation to the lonely Industrials.

Further down the pecking order are the NASDAQ and NYSE Composite, the two broadest measures of the market, both of which reached closing highs on October 19 of 2176.32 and 7222.21, respectively, and have yet to return to those levels, though they are not far off of them.

All of this sets up a very interesting scenario for Veteran's Day, in which the stock markets are open, but all banks and bond markets are closed, so, if one thought stocks were "going on alone" this week, without the aid of economic or corporate reporting, Wednesday will be a real loner. Maybe some of those bond-trading titans will lend a hand over at the NYSE.

On the day, only the Dow finished in the green, though the losses suffered by the other indices were marginal.

Dow 10,246.97, +20.03 (0.20%)
NASDAQ 2,151.08, -2.98 (0.14%)
S&P 500 1,093.01, -0.07 (0.01%)
NYSE Composite 7,126.42, -8.91 (0.12%)

Declining issues finished ahead of advancers, 3594-2180. New highs finished ahead of new lows, 315-85. Volume was low again, a signature of this week's trading.

NYSE Volume 4,508,971,500
NASDAQ Volume 2,010,213,625

Crude oil lost 38 cents, to $79.05. Gold gained $1.10, to $1,102.50, but silver continued to lag, down 26 cents, at $17.23.

Within News Void, Stocks Gallop Ahead

Opening the trading week with benign news from the G-20, which - through US mouthpiece Tim Geithner - stressed on Sunday that stimulus should remain in place, investors were encouraged enough to ignore the dire unemployment readings from Friday past, boosting equities right at the open and increasing the gains in a slow, steady grind upward throughout the session.

The Dow posted one of its best showings since the bottom in March, closing at its high for the year. Aided by the weakened US dollar, the other indices sported large advances, with the S&P approaching its key top at 1100, which has been hit but never breached this year. The telling part of this advance will come tomorrow, to see if the S&P can close above its previous high. With the Dow providing guidance, it appears to be a solid bet that stocks will continue to advance into the holiday shopping season. There are no meaningful earnings reports or economic data this week, so investors are on their own, so to speak.

Dow 10,226.94, +203.52 (2.03%)
NASDAQ 2,154.06, +41.62 (1.97%)
S&P 500 1,093.07, +23.77 (2.22%)
NYSE Composite 7,135.33, +177.04 (2.54%

The gains were broad-based, with 4465 advancing issues to 1338 decliners. New highs trumped new lows, 340-62, the largest daily margin in weeks. Volume was dismally low, however, as has been the case with much of the advance, even through the summer and fall. While all of Wall Street is abuzz with word of the vast sums of money sitting on the sideline, there is no indication that this money is coming into stocks as yet.

NYSE Volume 4,669,590,000
NASDAQ Volume 2,034,704,500

Commodities followed the inverse of the dollar, with oil ahead by $2.00, to $79.43, gold advancing $5.90, to $1,101.60 and silver gaining 9 cents to $17.46. Look for silver to break out soon, as it has not performed as well as gold recently. There were widespread rumors that the Indian government paid for their recent gold purchase from the IMF with silver, though that story has been widely discredited.

Investors should be buying in here on the rise, as there seems to be no impediment to stock gains. There will, however, be a pullback at some point, though the conditions for such a move may be weeks away and shallow, as has been the case throughout the 8-month-old rally.

Poor Jobs Data Fails to Induce Selling

Prior to the opening bell, the highly-anticipated Non-farm Payroll announcement from the Labor Dept. initially sent futures into near free-fall, but, after a modest decline in the first few minutes of trading, stocks stabilized and spent the rest of the day hugging the flat line.

October saw 190,000 jobs lost in the US and the "official" unemployment rate crank up to 10.2%, the highest since 1982. That the jobless rate was so high just 27 years ago must have served as a salve of sorts to investors, because the markets took it in stride. There is also the growing understanding that many of the US firms listed on the stock exchanges do not rely on the United States as their primary markets, one of the myriad hidden factors of globalization. Thus, US employment is not as large a factor in many businesses, plus, due to the largesse of the federal government, many people who are not employed have fairly sizable disposable incomes, allowing those same US markets to function as though full employment was in force.

Of course, the federal punchbowl of benefits is not any way to grow an economy, but equity investors seem intent on pushing prices higher, so long as the Federal Reserve keeps rates at essentially zero and Uncle Sam continues to dole out the greenbacks. Naturally, the dollar continues to decline in value, a condition not lost on the macro-economic crowd.

Nevertheless, Friday was not the day to be selling stocks as the major indices eked out marginal gains. Monday, however, may be another story.

Dow 10,023.42, +17.46 (0.17%)
NASDAQ 2,112.44, +7.12 (0.34%)
S&P 500 1,069.30, +2.67 (0.25%)
NYSE Composite 6,958.29, +8.15 (0.12%)

As one might expect, winners and losers were nearly evenly split, with declining issues taking a small advantage, 3203-3177. New highs, though, soared well ahead of new lows, 209-61, widening the margin for the third consecutive session.

Volume was negligible, well below normal levels, though Fridays are becoming something of an outlier, with trading sluggish at the end of the week.

NYSE Volume 4,999,170,500
NASDAQ Volume 1,845,147,875

Commodities finished mixed, with oil down $2.19, at $77.43, gold ahead $6.70, to $1,096.00, and silver lower by 4 cents, to $17.38. After the enormous move by gold over the past three weeks - a 10% gain - it appears that the yellow metal has found its own market, diverging even from its fellow precious metals. Platinum was lower on the day, and copper was flat. Gold has gone its own way and cannot be counted on as anything but a separate asset class, and possibly a proxy against all fiat currencies.

The cross-currents in the markets lately have been extreme, adding to volatility in some cases, but also prviding significant headwinds to any upward movement in stocks. The indices are settled below recent highs, and it does not appear that there's enough of a catalyst anywhere - outside of the easy carry trade on the back of the declining dollar - to propel equities through their recent highs. Within days the focus will be on the holiday shopping season, and, while many Americans may not be able to luxuriate their friends and families with expensive gifts this season, well-heeled foreigners certainly can take advantage of the prices of goods denominated in US dollars, especially Europeans and Chinese shoppers. International centers such as New York, Los Angeles and Miami may very well see increased traffic from outsiders, while Americans do their holiday purchasing at the various discounters, striking something of a balance.

With 3rd quarter earnings season now nearly complete, the next few weeks may indeed be a true test of the fortitude of US markets and equities. One thing's for sure: it's not going to be dull.