This could be the day the bulls point to at year-end if the S&P 500 is sitting well above 1200 or flirting with 1250 or higher. Getting excited about just one trading day is not a prescription for successful investing, but this is September and September is supposed to be ugly for stocks. History shows us that, but here we are 14 trading days into the month and the S&P 500 now resides at a four-month high and the Nasdaq is poised for its best September performance since 1998.
Call me a doubting Thomas, but volume remains light, but the bulls have flipped the script on the bears and that is worth noting. The bears seemed to feast on light volume in August, but the bulls are enjoying a light-volume party of their own this month. Volume was just over 2 billion shares on the NYSE and the Nasdaq, not terrible, but nothing to write home about either.
News flow was fairly light for a Monday with one of the marquee headlines coming from the National Bureau of Economic Research, which said the recession officially ended in June 2009. That was enough to propel the S&P 500 above 1143 at one point, the index's highest intraday level since mid-May. The index is now up almost 6% in the past three weeks and with only eight trading days left in September, the bears are clearly running out of time to make their case.
Of course, a good day for equities rarely carries over into a good day for the U.S. dollar, which fell against most of its major counterparts today after falling to a five-week low against the euro last week. In another sign that risk appetite is starting to pick up a little bit, the Australian dollar moved higher against the greenback and traders seem to be speculating that when the Federal Open Market Committee meets tomorrow, the Fed's low interest rate posture will remain in tact. Either way, the U.S. dollar has been in a bad way since June.
Dollar Index Chart
Low interest rates are not good for the dollar and the negative sentiment toward the greenback lifted gold futures to a record high for the third straight session. While plenty of pundits have been chirping lately that gold is the next asset class headed for a bubble, it has to be acknowledged that the yellow metal has continued a torrid pace while equities have moved higher. Gold's momentum is so strong at this point that futures traded as high as $1285.20 per ounce today.
Plenty of analysts and traders have forecasts that call for gold to trade to $1300 an ounce next year. Clearly, some of those estimates are going to have to be adjusted higher because $1300 an ounce could happen this week. While it can be argued that gold is overbought at this point and some analysts are making that argument, keeping interest rates low only pressures the dollar further, making gold all the more attractive. Gold futures are up 17% year-to-date and are poised to run to their tenth consecutive annual gain, according to Bloomberg News. That is the best run of consecutive annual gains for gold since the 1920s.
Staying in the metals space, Goldman Sachs was out with some bullish comments on copper today and Freeport McMoRan Copper & Gold (FCX) was on the receiving end of much of that praise. While Freeport is the world's largest publicly traded copper producer, the company did get 17% of its 2009 revenue from gold, so gold prices are providing lift to the shares as well.
Goldman lifted its rating on Freeport to ''buy'' from ''neutral'' and boosted its price target on the stock to $94 from $79. Freeport shares were already up almost 15% this month at last Friday's close, but tacked on another 2% today to close above $80 for the first time since March. The stock has a had tough time breaking through to $90 the last couple of times it has traded into the high 80s, so it will be interesting to see how long it takes for the Goldman price target to prove accurate.
In other stock-specific news, Lennar (LEN), the third-largest U.S. homebuilder by sales, delivered a profitable third quarter as the real estate market was a little less bad than it has been. Actually, Lennar CEO Stuart Miller said June was the worst the month of the quarter, but called July and August ''a little less horrible.''
Perhaps a little less horrible is all it takes to get investors excited about homebuilders these days as Lennar shares jumped more than 8% on more than double the average daily volume. Florida-based Lennar said it earned $30 million, or 16 cents a share, during the quarter compared with a loss of $171.6 million, or 97 cents a share, a year earlier. Revenue jumped 14% to $825 million from $720.7 million. Analysts were expecting a profit of five cents a share on revenue of $777.5 million.
Good news for Lennar, but one real estate factoid that cannot be glossed over is that the National Association of Home Builders said today that its homebuilders confidence index is still at the the lowest level in 18 years and that is two straight months of that dour reading.
What would a Monday be these days with some mergers and acquisitions news out of the tech sector? An exception, but investors did not have to worry about that thanks to Dow component International Business Machines (IBM) announcing that it will acquire data-sorting firm Netezza (NZ) for $1.7 billion. IBM is using the deal to expand its footprint in the analytics business, which accounted for $9 billion in sales for IBM last year. The company is looking to boost that total to $16 billion by 2015.
IBM is quite serious about the analytics business as the Netezza acquisition represents IBM's 24th purchase in this arena in the last four years, according to the Associated Press. The Netezza buy is IBM's biggest analytics purchase since the $1.2 billion buy of SPSS in 2009. IBM will pay $27 a share for Massachusetts-based Netezza, a 10% premium to where the stock closed last Friday.
Another reason why IBM may have been keen to acquire Netezza: There were rumors that, surprise, surprise Hewlett-Packard (HPQ) was also interested in the company.
Looking at the charts, at Friday's close, the S&P 500 was honoring an extremely tight range of 1120-1130. If you are in the bullish camp, the good news is that range was broken in decisive fashion today as the S&P 500 closed just below 1143. There might be some token psychological resistance at 1150 and againbat 1200, but the if the bulls can continue to control the market, there is plenty of real estate for the index to run to its next significant hurdle at 1240. Another bullish sign would be for old resistance at 1130 to turn into new support.
S&P 500 Chart
The Dow had been slow to work its way back to August resistance at 10,700, but that issue was taken care of with authority today as the blue-chip index jumped all the way to 10,753. The index huffed and puffed its way to gain of just 37 points last week and then proceeded to almost quadruple that gain today. Next resistance lies at 11,000, but the catalysts probably are not there for the Dow to traverse that lofty level this week. If 10,700 turns into support, that would be another point in the bulls' favor.
Tech stocks had disappointed for a good part of the summer, but the news flow out of the sector has turned positive in recent weeks and that has been a boon for the Nasdaq. Dividend news out of Cisco (CSCO) and Microsoft (MSFT) helped as did Oracle's (ORCL) earnings report last week. Those headlines are old news and they had already helped the Nasdaq conquer resistance at 2300. Monday's close just below 2356 brings resistance in the 2385-2400 area into view. Support is 2290.
Small caps are not being left behind by this rally and the Russell 2000 is flirting with the area that would prompt me to become even more bullish on the group. I have previously said that 675 is the area to watch on the upside with Russell 2000 and the index traded as high as 670 today. The index easily dealt with 650 today, but must traverse 675 to encourage buyers to come off the small-cap sidelines.
Russell 2000 Chart
The FOMC meeting will be big news on Tuesday and there are three more housing reports this week that could throw a curve ball at the bulls, so this week could represent a test of the September rally's strength. At the stock level, more buybacks, dividend increases and upgrades are the catalysts needed to fan the flames of the rally heading into October.
I admit there is no science involved in this little anecdote, but the ''Wall Street'' sequel debuts this week. When the original debuted in December 1987, the Dow added about 7% over the next two months. Consider that my fun fact for the day, not an invitation to buy stocks simply because of a movie debut.