10,000 to 11,000 in Just 7 Days
You used to have to wait for months to pass from one millennium mark to the next. Welcome to the next generation of investing where it only takes 7 days to ramble over 1300 points on our blue-chip index. The DJIA was sitting at 9800 last Wednesday when the bulls dug in and made a charge like none other we have seen in this index. 11,000 tried in vain to act as resistance this morning, but before the day was over, the curbs were in place due to the dramatic rise. You can thank the stocks that have been working there way higher for the past week for today's gains too. Strong Financials like Citigroup +2.94, Chase +6.94, Morgan Stanley +4.63 and good old American Express +8.25. You wouldn't likely have found many traders saying "good old American Express" just two weeks ago when it was holding on by its fingernails to support at $130. But here it is at $156 just two short weeks later. Hewlett-Packard tacked on another +1.06, Alcoa chipped in +2.63, General Electric added +9.13 too, but the big winner of the day was Microsoft +8.63. This was due to news that settlement talks have increased and some are expecting a resolution as early as next week. The potential deal is not expected to result in a break-up or restructuring either. Hey, either way is fine with me. The sooner this gets put in the past, the better. This will have a direct impact on the DJIA too, with MSFT now in the index.
You have to give credit to the "old economy" stocks. A month ago they were being tossed around like a hot potato with no one willing to buy and hold. Now they are like diamonds (no pun intended) and are leading this next leg of the rally in a continuing sign that sentiment is still strong. It's not a matter of getting out of stocks, just shifting to the next sector set to rally. The DJIA closed up a whopping +253 and just 12 points under the day's high. Volume was steady once again at 1.07 bln shares. Remember that little downtick yesterday where the DJIA closed off 40 points. Apparently, that was the short- term correction because back to the rally it was today. In fact, lots of the Financials closed right on their day-high and aren't showing signs of stopping. INTC took a breather today and may be back to rally mode tomorrow and who knows how high MSFT will run before stopping. Don't be surprised to see a continuation even though common sense tells us that some profit-taking is in order. Nothing surprises me anymore in this market.
Take a look at the chart to see today's steady rise until it stalled somewhat at 11,100. The second chart shows why this happened. You have some historic resistance at this level. Today's close near the high may be a sign of more to come, but don't bet the farm. This thing has to take a break at some point and more than just for a half of a day like we saw Wednesday.
The Nasdaq managed to rally again today. It try for a 100+ day for the third day in a row, but gave way in the afternoon. It closed at 4940, up 75.86. Volume was identical to yesterday at 1.7 bln. It had a strong trend all day before rolling over as you see in the chart. Without a 2 billion plus volume day this week to confirm the rally, it leaves me somewhat suspect of a continuance. Especially, if the DJIA remains the leader. But, with earnings season nearing and the Nasdaq creeping back to old highs, it will always stay high on my market monitor. The test tomorrow will be if it can shrug off the late day profit-taking and maintain a good solid rally. You almost have to figure more profit-takers will be looming ahead of the weekend and after this week's rebound.
Oddly enough, the VIX went up on a day like today. Can't explain that one for you, but it closed at 24.55, +1.56. Anyway, it is middle of the road, giving us the all clear signal. Even news that from the FOMC minutes from February couldn't disrupt this bull market day. It was reported that several members had favored a 50-point move in February. As soon as that hit, I was expecting some sort of retracement in the averages, but not even a hint of selling emerged. Traders must have figured that they got their 50-point move with the 25 in February and the other 25 this week. They were even quoted as saying that "relatively high real interest rates would be needed" to curb the economy. Still they admitted that inflation is not in sight just yet.
GM was another big winner today on a report from CNBC that News Corp. was entertaining a bid for GM as a way to get at its Hughes subsidiary, operator of DirecTV, the nation's most popular and largest satellite television service with more than 8 million customers. This was quickly denied at News Corp, but someone must be a believer since GM climbed $5.25 to close at $87. This is one of those rumors you scratch your head about since it sounds like a stretch to go after GMH that way. News Corp's exact words on the matter, "entirely false and without merit."
Oil dropped today by $0.15 to $27.31 a barrel as the waiting game to Monday's OPEC meeting is in full force. Unless the rumors start to fly (and we all know that is possible in this commodity), don't expect much movement on Friday. The OPEC oil ministers are expected to increase production by at least 1 million gallons a day, but some wonder if that will be enough. Energy Secretary Bill Richardson believes there's an estimated 2 million barrel per day shortfall in supply compared to demand. Some companies like Federal Express today announced an additional surcharge for deliveries based on the high fuel costs. You can bet that more increases like this will show up on the inflation scale soon so next week will be crucial.
All in all, this has been a tame earnings warning season so far. First Call has already indicated that there is more upside surprises likely than downside. In truth, it is not likely to matter if Compaq or Eastman Kodak or some other already tattered stock warns to the downside. You still have to fear the MicroStrategy warnings, but that was likely an isolated incident. With that said, we could see a strong April for the markets. Whether it is in cyclicals or back in the Nasdaq, there are stocks to play. As always, let volume be your guide to which stocks are carrying current momentum. Again, today's Nasdaq afternoon rollover may be setting the tone for tomorrow as traders take gains of the table ahead of the weekend. That wouldn't surprise since there weren't any profits to take home last week. The DJIA continues to have a mind of it's own. If it trek's above this general 11,100 range again tomorrow, we could be back to new highs in a heartbeat. Keep your eye on the financials and old school tech stocks like MSFT, INTC, HWP, and DELL that have had one mighty resurgence lately. In all cases though, be smart and sell too soon.