A flood of previously sidelined cash pushes markets to new highs.
The flood of money pouring in from the sidelines overwhelmed the sellers at the open and the market quickly overcame a -65 point loss to close with big gains. The Dow closed over 11,000 for the first time since May-13th and the Nasdaq and S&P-500 both set new record highs.
The National Assoc. of Purchasing Managers Report came in stronger than expected at 57.0 instead of the 54.4 estimates. This stronger than expected report immediately brought into question the rate increase from Wednesday and brought up the specter of another rate increase sooner than was expected just yesterday. This shows you how quickly soaring positive sentiment can be brought back to reality by an economic report. While the Fed did return to a neutral bias there is nothing to prevent them from raising rates at any time if the situation warrants.
The bond market which rallied strongly yesterday and saw yields pushed below 6% for the first time in several days, immediately sold off again and closed the day with the yield at 6.01%. The quick reversal on the NAPM report caught many analysts by surprise. The top had been called in interest rates and only a day later the top blew off. Fortunately the stock market did not hear the alarm and the buying binge continued.
The transports finally confirmed the rally today as the airlines caught the buying contagion. The Internets continued to gain ground and the tech sector in general did well. There was a few pockets of profit taking but by and large the euphoria snuffed out the normal down day after a Fed meeting. However the advance decline line only barely made it into positive territory with only 356 more stocks advancing than declining. Some of the stocks giving in to profit taking included Dell -.38, VRSN -3.69, QCOM -3.75, GTE -1.38, SUNW -.69, BRCM -6.88, NVLS -1.22, TXN -2.50, GE -1.50. After beating earnings yesterday NKE dropped -3.81 today. Starbucks coffee was burned for -10.63 after warning about slowing earnings. Amazon missed a sale today as Books A Million (BAMM) won a sole source contract with Walmart to supply books for Walmart's online customers. BAMM broke a seven month slide with a gain of +6.34. AMZN lost -2.75 on the news. The oil companies all tacked on decent gains as oil traded over $19 per bbl.
The big news was the Nasdaq closing over 2700 (2706) and near the high of the day, and the S&P-500 also closing at a record 1381, only 2 points from the high of the day. Volume was good and investors appeared to be putting off their holiday vacations to make last minute purchases. The Nasdaq is clearly in breakout mode and the Dow is not far behind.
The only major index not taking part in the rally was the newly reshuffled Russell-2000. Now a small cap index again, it posted a -3.26 loss. Without the big Internets to hold it up the Russell was again struggling to tread water. Horror stories of huge swings in stock prices on individual stocks were common. One stock, ABRX, soared from $35 to $100 yesterday and then opened back at $35 this morning as one fund manager mistakenly bought ABRX when he should have been selling. Another nightmare was Pit-Des Moines, which trades on the AMEX, it rose +$30 yesterday only to drop -$30 today.
The fly in the soup will be the Jobs report Friday morning. If the dreaded inflation monster shows up strongly again tomorrow like it did in early May then the euphoria may be short lived. If there is no sign of inflation then the rush to earnings will continue and next week could be a banner week. Whether the averages will benefit from a good report tomorrow remains to be seen. With the Dow tacking on +531 points in the last five days we could see some profit taking but I sure would not bet on it. The positive sentiment is very strong. There were many stocks that dropped in the last five minutes of the day today either in anticipation of the jobs report or early profit taking by traders leaving early for the weekend. Some examples would be TXN, QCOM, INKT, AMTD, DCLK.
This could be nothing or a prelude to a broader profit taking in the morning. Either way I would still be a bargain hunter midday Friday. S&P futures are down about -1.50 and the open tomorrow could swing either way but midday should be level. We could see a bounce again at the close as non-vacationing traders try to start positions in front of a continued rally next week. Expect weak volume conditions and associated volatility.
Remember, July options expire in two weeks so don't get married to them. Time to move into another month before the time premium evaporates. Only play July on new positions if you expect to be out of them within the week. Friday would be an excellent chance to sell naked July puts on some of the fast gainers to make some free cash. Simply remember to enter a buy to close order with a stop if you don't want to accidentally own the stock on a pullback.
Have a great weekend, and watch those eyes and fingers!