Another Triple-Digit Day
There they go again! The bulls came back from the weekend refreshed and ready to run. Despite some early morning weakness the markets took off for another triple digit gain by day's end. From Thursday's close the DJIA is up 235 points and trading near the top of its short-term channel (see images below). The rest of the market followed suit with many of the major averages at three or four month new highs. The Industrials added 122 points to 8726. The NASDAQ gained 21 points to close at 1541. The S&P 500 index added almost 12 points to close at 945, which is significantly above the previous highs of 930 in January.
Painting the backdrop for this market rally were strong results in the Far East with the Japanese NIKKEI gaining 69 points to 8221 and the Chinese Hang Seng adding 71 to 9155. European markets were mixed with the English FTSE 100 adding 18 to 3987 and the German DAX losing 19 to 2937. Early in the session both Gold and Oil futures contracts were gaining ground but investors' unbridled desire for stocks today had both the shiny metal and the black gold wilting from intraday highs.
The market's internals show just how badly traders wanted to buy equities today. The advance-decline ratio was very positive with 1990 winners to 869 losers on the NYSE and 1957 winners to 1107 losers on the NASDAQ. It's a non-stop beating for 52-week lows, which measured a measly 23 compared to 454 new 52-week highs. More impressive was the up-down volume ratios. Up volume swamped down volume by 6 to 1 on the NYSE and 5 to 1 on the NASDAQ.
Most investors, traders, and professionals on Wall Street seem pretty enthusiastic that stocks have made such a comeback from their March 2003 lows. However, the chorus of "stocks have come too far and need a pull back" or "stocks are over extended and need to digest gains" is growing louder with each new voice echoing the same concerns. Check out the charts below:
Chart of the Dow Jones Industrials:
Chart of the NASDAQ Composite:
Chart of the S&P 500:
Boosting this big gain in the Dow Jones Industrials today were the three biggest percentage gainers MO, SBC and MCD. All of them were up over four percent each today. Shares of Altria Group (MO), previously known as Phillip Morris, jumped $1.40 to close at $33.10, above its simple 50-dma. The rise was powered by a positive article in this weekend's Barron's. Quoting a Morgan Stanley analyst, Barron's said that MO's stock may have become "too cheap to ignore". According to the report shares of MO trade for less than seven times estimated 2003 profits of $4.60 a share and ownership offers a dividend yield of more than 8 percent. The tobacco analyst also suggested that MO's stock could climb more than 25% by the end of 2003 if the courts continue to rule in the company's favor and MO re-ignites its share buyback program. Last month MO's CEO said the company's legal issues were "manageable".
The next biggest gainer was SBC Communications, who added 4.09% or nearly a dollar to close at two and a half month highs and above its simple 200-dma. The telecom company was trading higher after an the state of Illinois passed legislation that allowed SBC to almost double the rates it could charge competitors for leasing its local network. AT&T and other telecoms had been trying to compete with SBC for local phone customers and this new piece of legislation will put the brakes on competition. Of course SBC argues that the new rule merely brings Illinois closer inline with the national average for similar services. Shares of AT&T (T) another Dow component lost four cents on the session.
Third in the line of big Dow component gainers is McDonalds (MCD) who closed up 4.03% or 71 cents to $18.29. The stock has been following the same rising channel as the markets but it still has a little room to go before hitting the upper band. Investors can be comforted in that MCD is reaching levels not seen since December of 2002 and this marks another confident close above its simple 200-dma. However, the stock is approaching resistance at $19.50 on its point-and-figure chart so the bulls have their work cut out for them.
Probably the most influential mover today was Cisco Systems (CSCO). No stranger to the spotlight, today shares of CSCO rallied more than 4.5% to close at $16.67. CSCO can credit such a move to an upgrade by Lehman Brothers. The LEH analyst raised his rating on the stock from an "equal weight" to an "overweight" while lifting his price target on shares a buck to $18.00. All in all it wasn't a very enthusiastic upgrade as LEH says sales growth remains "muted" but a strong month in April and indications that May sales won't be bad are an opportunity for investors. Lehman suggested buying shares of CSCO on weakness.
Tomorrow is a pretty important day for retail as the biggest retailer on the planet, Wal-Mart, is due to announce earnings before the bell. Currently, analysts estimate that WMT will turn in 42-cents a share on revenues of $60.69 billion for the quarter. Last year WMT earned 37 cents a share on $55.42 billion in revenue. The Bentonville, Arkansas-based behemoth made the news this morning after stating that Mother's Day sales came in "below plan". Despite the bad news the company assured investors that May would be inline with estimates for a gain of 1% to 3%. The stock reversed early morning weakness to bounce off the bottom of its short-term channel. This strength in WMT coupled with positive spots in other retailers lifted the RLX retail index to levels not seen since July 2002. The sector as a whole looks very overbought and we could see a "sell-the-news" event once WMT's report comes out tomorrow. If WMT doesn't spark any consolidation then KSS and TGT have a chance later in the week with their own earnings report.
Tomorrow will see Applied Materials (AMAT) announce after the bell and any surprises here will surely affect the chip sector. Odds for some profit taking on Tuesday after the strong two-rally in the Industrials are big but broader market indices like the S&P 500 and the small-cap Russell 2000 still have a little bit more room to the upside before hitting the tops of their respective channels. It all depends on how investors react to WMT's earnings tomorrow, as most of the big economic reports don't start announcing until Wednesday.