Everything was going along quite well for the S&P 500 and the Dow Jones Industrial Average until a late day sell-off struck, sending the indexes careening into the close. Headlines that the Senate was preparing to vote on the Obama/Republican tax-cut agreements were probably the culprit that sent the Dow down 40 points in the last hour of trading. Both the Dow and S&P 500 eked out small gains while the Nasdaq was in the red by the time the closing bell rang. Breadth was lousy as four stocks fell for every three that advanced.
While Monday's action was not much to cheer about, the outlook for U.S. stocks is still rosy, at least according to some the major U.S. banks. Citing rising profits and impressive cash hoards, strategists think the S&P 500 has another 11% left to run, according to Bloomberg News. Goldman Sachs sees the index rising by 17% next year and Barclays sees the S&P 500 reaching 1420 by the end of 2011. Goldman says U.S. companies are sitting on $1 trillion in cash and look ready to deploy some of that capital, especially in the form of mergers and acquisitions and share repurchases, Bloomberg reported.
Share buybacks and M&A activity are well and fine and certainly better than no positive catalysts at all, but I cannot help but think that higher dividends (which I think will be seen) would be nice as well, but increased hiring would be a real game-changer in 2011.
While it is disappointing that U.S. indexes did not hold the gains made earlier in today's session the argument could be made that the bulls should be grateful there was not a nasty sell-off to deal with today on the back of China's inflation data, which was released over the weekend.
Chinese inflation jumped to a 28-month high of 5.1% in November, but the Peoples Bank of China took a pass on raising interest rates to deal with the issue. At least for now and that was enough to send the Shanghai Composite up by almost 3%, its best one-day performance since October. While Chinese policymakers are showing restraint with regards to interest rates, they are not shy about requiring banks to hold more capital. The PBOC raised the minimum amount Chinese lenders must keep in reserve for the third time in a month.
Chinese interest rate swaps gave up nine basis points on Monday, but there is no getting around the fact that an interest rate hike out of Beijing is still a very real possibility. China's real interest rates have been negative since February and with a small amount of trading days left in 2010, it is not a stretch to say the PBOC will not raise rates this year, but the move is probably coming. It is a matter of when, not if.
Speaking of assets are intimately tied to China, oil gained half a percent on the day, but like stocks, black gold had difficulty holding early session gains. NYMEX-traded crude for January delivery flirted with $90 earlier today despite news that OPEC members are not obliging by their own production quotas and are producing more oil in anticipation of the return of $100 per barrel prices next year.
Some of the headlines used the term ''cheating'' with regards ramped up production, but when one looks at OPEC's roster, it would almost be more surprising if this motley crew was not engaged in some chicanery for its own benefit. OPEC's production quota is 24.85 million barrels per day for 11 of its members (Iraq is not subject to the quota), but real production is in the area of 29 million barrels, the Wall Street Journal reported.
I find it hard to trust countries like Venezuela when the Venezuelan oil minister is out saying $100 oil is fair to producers and consumers (try telling that to the consumers), but OPEC is what it is and the news of $100 oil, which options traders are betting on in a big way, isn't all bad. Four of the new 52-week highs on the New York Stock Exchange today were Exxon Mobil (XOM), Chevron (CVX), ConocoPhillips (COP) and Occidental Petroleuem (OXY), the four largest U.S. companies.
Moving over to tech, a bunch of bullish analyst chatter was helpful to the individual names to which that chatter pertained, but it was not enough to lift the sector at large nor the Nasdaq. Goldman Sachs was full of praise for Apple (AAPL) today, calling the iPad maker's platform-centric business model its ''secret sauce'' while saying Apple could ship 37.2 million iPads next year.
Still, Apple shares only gained 0.35% even after all the Goldman gushing. In fact, it was a really disappointing day for Apple bulls (they can handle it, trust me). The stock traded between $321-$325, a new high, but managed to close at $321.67. Remember, this is after Goldman added the stock to its conviction buy list with a $430 price target. Assuming Goldman is right, Apple shares still have some decent upside left in them.
Goldman's magic did a little bit to help EMC (EMC), the largest provider of data storage services, which gained almost 1.1% after the bank resumed coverage of EMC with a ''buy'' rating and a $27 price target. In a note to clients, Goldman cited ''secular tail-winds and expanding margins'' as potential catalysts for EMC shares. NetApp (NTAP), seemingly a perpetual acquisition target in the data storage space was raised to ''overweight'' from ''equal weight'' by Barclays. The bank also raised its price target on NetApp to $67 from $56, helping the stock gain 2.6% on the day.
Dell has enjoyed a solid run over the past three months, gaining 12%, but the shares plunged almost 4% today on volume that was roughly a third higher than the daily average on news of the company's $883 million offer for Compellent Technologies (CML), another name that is frequently the subject of takeover chatter.
It is not unusual to see the acquirer decline on M&A news, but it is rare for the target to decline. Yet, that is what happened with Compellent today. The shares shed 2.6% on volume that was eight times the daily average because Dell is only offering $27.75 for Compellent, which is below where the stock closed on Friday and today.
Poor Dell. The company that cannot seem to get out of its own way has been trying to make deals this year only to be outdone by rivals like Hewlett Packard (HPQ), but by offering less for Compellent than where the stock currently trades, it is obvious Dell has not learned any lessons. What Compellent shareholder is going to feel compelled (pun intended) to sell his shares to Dell for less than he get on the open market?
Looking at the charts, the S&P 500 built on Friday's two-year closing high in the most meager of ways today, but still trading around 1240, the index looks poised to start fresh move to the upside. For those worried about support, that is 1200 and on the move upward. The 1250 could be a brief stumbling block simply because so many analysts have pegged that as their year-end target, but once that level is cleared, 1270 looks to be the next serious resistance point.
Add up the Dow's 18-point gain on Monday, 40 points on Friday and eight points for the previous days and we get a whopping 66-point move for the industrials over the past seven trading days. Not to sound too alarmist here, but what is it going to take to move the Dow? GE (GE) raised its dividend last Friday. Chevron announced it would spend more on exploration. Pfizer (PFE) raised its dividend today. Support at 11,335 is being honored, but it will be interesting to see if how the Dow acts at 10,450.
The Nasdaq was finally able to find its way above resistance at 2625 on Friday and that is where the index settled today, ending an eight-day winning streak. Support is 2620 and after a move over 2650 would result in some clear sailing to 2800, perhaps a bit higher.
The Russell 2000 took a step back from its exciting advance today, support at 767 was not threatened and the index still looks to be in fine shape for a positive run through the end of the year. With another 70-80 points to go before resistance is seen again, I am not betting on the Russell getting to those areas this week, but the small-cap space is getting harder and harder to ignore. I have personally been adding to positions in the PowerShares small-cap sector ETFs in recent weeks, which are basically the small-cap cousins to the SPDR funds.
Russell 2000 Chart
Obviously, I am bullish, but more so on small-caps, metals and energy than other market segments at this juncture. I am off to referee some high school basketball, holiday time equals tournament time, but I will be with you again on Wednesday.
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