U.S. equities put fears over the Dubai financial crisis behind them on Monday as all three major indexes moved higher on the day. The S&P 500 extended its gains for November, adding 8.36 points to close at 1095.63. The Dow Jones Industrial Average gained almost 35 points to finish the day at 10344.84 and the Nasdaq added just over six points to close at 2144.60.
As I always say, an up day is better than a down day, but given the losses incurred on Friday in the wake of the Dubai news, Monday's gains were not enough to get the major indexes back to their pre-Thanksgiving levels. The S&P 500 still trades below the critical 1100 area and any hopes for 2200 Nasdaq 2200 may have to be shelved for awhile as the index could not even reclaim 2150 on Monday. The weak trade in the Nasdaq was curious to say the least given the bullish trade in two big Nasdaq components, Amazon (AMZN) and eBay (EBAY).
In recent years, the Monday following Thanksgiving has become known as â€œCyber Monday,â€ the online retail world's answer to â€œBlack Friday.â€ Analysts are expecting Cyber Monday sales to reach a record this year as more shoppers opt for the ease of Internet shopping over a trip to the local shopping mall. Web tracking firm comScore said as much as $900 million could be spent online today as retailers offer big discounts and free shipping. That would represent a hefty increase from the $595 million that was spent online on Black Friday.
This should be good news for Amazon, considered one of the Four Horsemen of the Nasdaq, and it was as Amazon shares touched an all-time high of $136.08 before settling at $135.91. The chart below shows a significant gap up for Amazon in October around the time of the company's last earnings report and conventional wisdom says gaps normally get filled in, but Amazon has shown nothing but strength over the past month and the company appears poised to be a prime beneficiary of the online holiday shopping trend.
Amazon trades at a lofty 53.7 times forward earnings meaning the stock is neither cheap by price nor by underlying fundamentals. That could mean investors may start to favor eBay, which was up 5.4% on Monday. eBay is far cheaper at just 15 times forward earnings and $24.47 a share, but the trade in the stock was robust on Monday. Volume was about 40% higher than the daily average and the 52-week high of $25.80 isn't that far off. There are two reasons eBay may be another winner this holiday season. First, transaction volume at the company's PayPal unit is increasing. Second, eBay is a bargain hunter's nirvana and with newly frugal consumers looking for every chance to spend less this year while still giving nifty gifts, eBay may actually benefit as shopper hunt for the best deals.
The bottom line here is that two of the Nasdaq's most visible members are looking bullish, but the index in general looks lethargic. Perhaps this is the market's way of saying the Nasdaq needs more help than what Amazon and eBay can offer. Or maybe not. Either way, time will tell.
With all of this fervor over Cyber Monday, one might expect retailers to have led the market advance on Monday. Oddly enough, financials were the best performers of the 10 industry groups tracked in the S&P 500. Dow component JPMorgan Chase (JPM) added 2.81% and Wells Fargo (WFC) gained 3.32% to lead the sector higher. Goldman Sachs issued a bullish research note on Monday, saying it continue to favor big banks and credit card issuers over their regional counterparts. Goldman says it is still bullish on JPMorgan Chase, Bank of America (BAC) and Capital One (COF).
One black mark for financials on Monday came a from a name that seems to be a perpetual black on the sector. American International Group (AIG), the infamous insurance concern, plunged nearly 15% after a Sanford C. Bernstein analyst said the company has an $11 billion shortfall in property-casualty claims and that may impair the company's ability to repay its debt to the U.S. government. Bernstein lowered its price target on AIG by 40% to $12, a far cry from $28.40 where the shares closed at.
AIG owes Uncle Sam something in the neighborhood of $182 billion and some rivals say the company was selling insurance products too cheaply in an effort to simply retain clients. Good luck keeping clients when you cannot pay their claims. If you are in the mood for a chuckle, the AIG chart is below.
Speaking of Goldman Sachs calls, the steel sector also curried some favor from Goldman on Monday, earning an upgrade to ''attractive'' from ''neutral.'' Goldman placed U.S. Steel (X), the largest U.S. steelmaker, on its highly regarded ''conviction buy'' list. Goldman also likes AK Steel (AKS), Nucor (NUE) and Steel Dynamics (STLD).
Goldman is forecasting a return to growth for the steel industry in 2010, buoyed by demand from automakers and other industrial customers. In addition, low inventories and a weak dollar should help firm up steel prices in the U.S. Of course a rebound in steel demand could lend some help to the market rally. Materials names, including steel issues, have certainly helped the market move higher, but many steel stocks have posted gains on the back of sketchy fundamentals.
And all this talk of materials reminds me that is to time to mention gold. By now, most of you probably think I am a goldbug given the frequency with which I mention the yellow metal. Personal feelings aside, the trend for gold is undeniable. December gold futures were up $6.90 to $1181 an ounce on Monday and my best guess is that they will soon traverse last week's record high of $1188 an ounce. Gold rose 13% in November, posting only three losing sessions, good for the metal's best month since November 2008. Futures were up 14% on the month, and that's good for the best performance in a decade.
A weak dollar and renewed buying by global central banks bolstered gold prices in November and catalysts like the Dubai debt crisis do not hurt gold's cause. Gold's run higher has lifted the precious metals group at large and I would be remiss if I did not mention the iShares Silver Trust ETF (SLV) again. SLV has traded in lockstep with comparable gold ETFs over the last several months, but have a look at the chart below, which illustrates the divergence in gold and silver price performance since March. In what may be a surprise to some, silver is the clear winner. So while the market continues to laud gold with most of the precious metals headlines, there are certainly other profitable opportunities to be had.
Looking ahead to Tuesday, expect a busy day in terms of economic data. Frankly, this week is chocked full of important economic reports. The Institute for Supply Management (ISM) delivers its November manufacturing report, which is expected to show a reading of 54.8, down from 55.7 in October. That number comes out at 10 AM Eastern time and at the same time, the National Association of Realtors (NAR) should report a 0.5% dip in pending home sales for October after a 6.1% jump in September.
The Census Bureau is expected to report a 0.4% drop in construction spending in October, which will erase part of September's 0.8% gain. Monthly auto sales will also be reported on Tuesday. Expect a drop from the October number. There are a couple of other pivotal reports this week, but the crown jewel will be November non-farm payrolls number, which will be released Friday before the market opens.
Taking a look at the charts, the Dow bounced off support in the 10300 area today and that is a good sign as a move to 10200 area would not have been good news. Resistance continues to loom in the 10500 area where the Dow peaked at 10495 before moving down last week on the Dubai news. Even if the fallout from Dubai looms longer than expected or wanted, the impact is likely to be felt more on emerging markets stocks than on blue chips and some investors may run to the relative safety offered by many Dow members.
The S&P 500 is a different, perhaps more concerning story. While the index found support at 1085 last week, even with today's pop, the index still languishes below 1100. Monday's trade still leaves the S&P 500 a healthy 18 points away from the November peak of 1113.69. If 1085 can hold firm as support, that is a good sign. If not, well let me just say that the holidays may not be so cheery for many on Wall Street.
S&P 500 Chart
And if you really want some reasons to be concerned, check out the Nasdaq. As I mentioned earlier, the Nasdaq managed only a tepid gain on a day when two of its biggest players, Amazon and eBay, were heavily embraced by investors. Techs have been a key catalyst of the market rally, but the Nasdaq was beaten away by resistance at 2200. The near-term trend for the Nasdaq is not all that encouraging as the index peaked below its 50-day moving average last week and barely moved back above that line on Monday.
Another dip below the 50-day moving average could show us how strong support at 2100 is and if it is not strong, a move below 2050 could be in the offing.
I do not normally opine about the Russell 2000, but maybe I should. Small-caps may be in some trouble as evidenced by news that the iShares Russell 2000 Index ETF (IWM) is seeing significant outflows. After gaining $2.2 billion in new investments from July to September, $1 billion has departed IWM since the beginning of October. Remember that small-caps typically outperform their larger peers coming out of bear markets and recessions, so this outflow news may be a negative sign.
Russell 2000 Chart
While it was encouraging to see stocks move past the Dubai news on Monday, I think the technical pictures for the Nasdaq and S&P 500 are less than rosy. If at least one of those two could start moving back to and beyond their critical resistance levels, that might give the bulls some more ammo to carry this rally into the holidays. Caution appears warranted at this junction.