Equity bulls reasserted themselves with some authority on Monday as the Dow Jones Industrial Average rallied to a 13-month high. It was another triple-digit day for the Dow, the second such gain in the last four trading sessions. The S&P 500 added 2.22%, but continued to trade below the all-important 1100 level. Same goes for the Nasdaq. The tech-laden index made its way higher by nearly 2%, but failed to traverse a key resistance level at 2200, closing day at 2154.
As was the case last Thursday when I previously visited with you, there were a host of catalysts today to attribute the rally to. A weak dollar, some mergers and acquisitions news, the G-20 agreeing to maintain economic stimulus efforts and other news combined to give the bulls the greenlight to run stocks higher. Nine New York Stock Exchange stocks rose for each one that declined. Of course, a weak dollar means good news in the commodities pits. Gold continued to benefit from the weak greenback, doing what the S&P 500 could not do, that is breaking above 1100. Gold for November delivery closed at a record high of $1103.60 an ounce and there really does not seem to be any stopping the yellow metal.
If futures trading is not your bag, keep an eye on the SPDR Gold Shares (GLD) ETF, which holds physical gold. GLD holds so much physical gold that is the sixth-largest owner of gold in the world, so yes, this ETF moves when the underlying commodity moves, as the chart below attests to. As you can see, volume on GLD's up days usually far outpaces volume on the down days and GLD was up again today on 40% higher than average volume.
As I said, there probably is not much to get in the way of gold's ascent higher. The primary stumbling block would be a stronger dollar, but in all likelihood, the dollar is not going to find enough strength in to knock gold off its course. It is hard to argue with the long-term dollar trend, which is down. Just take a look at the U.S. Dollar Index. The dollar index measures the dollar's strength against six major currencies, the Euro, the Japanese Yen, the British Pound, the Canadian Dollar, the Swiss Franc and the Swedish Krona.
The dollar index was established in 1973 at a trade weighted average of 100 or $100. On Monday, the dollar index closed just above 75 and if you interpret that as the dollar shedding 25% of its value since 1973, you are probably correct.
Dollar Index Chart
When it comes to metals, copper has been no slouch and one might argue the red metal is more indicative of economic health because it has far more industrial uses than does gold. Copper continued its bullish ways on Monday as the December contract inched closer to $3. That translates to good news for a stock that I frequently mention here: Freeport McMoRan Copper & Gold (FCX). Freeport added nearly 5% on the day and is now within earshot of its October peak of $84.28.
But I am not going to include a chart of Freeport today. I thought might be a good idea to look at another copper stock and that is Southern Copper (PCU). Obviously a rival to Freeport, Southern Copper has been making bullish moves of its own and added 3.25% on Monday. Year-to-date, Southern Copper has more than doubled.
As I mentioned earlier, today's rally was led by the blue chips with 29 of the 30 Dow stocks finishing higher. Kraft (KFT) was the lone laggard, which is not surprising given that the company is engaged in a contentious battle for Cadbury (CBY). General Electric (GE) added 3.4% and Intel (INTC), the world's largest semiconductor maker, tacked on 2.8%. Both names still have a little bit of room to go to get back to their 52-week highs.
And proving that commodities and materials issues are integral to the strength of this rally, another name that I mention here frequently, Caterpillar (CAT), the world's largest maker of mining and construction equipments, rose by more than 4%. Caterpillar closed right at $60 and now resides just $1.28 off its 52-week high.
By now, you might be expecting that commodities issues were the leading industry group today and while that it is a fair guess, it is also incorrect. Financials won that distinction on Monday, gaining 3.6% as a group. Absent significant news, Dow components American Express (AXP) and Bank of America (BAC) both charged higher (no pun intended) by more than 4%.
It is worth noting that American Express, a Warren Buffett favorite, has been on a tear lately, adding 15% in the past three months, more than double the Dow's performance over the same time. American Express made a new 52-week high of $39.16 today before closing at $39.05 while volume was nearly 50% higher than usual.
Things were so good for financials today that Goldman Sachs (GS) traded higher by $4.79, or 2.79%, on news that it is underwriting a $400 million bond offering backed by an Ohio real estate firm's shopping centers. In Goldman's world $400 million is someone's Christmas bonus (I think I am using some hyperbole there, but not much), so it is a testament to how strong the buyers were on Monday that Goldman would gain nearly $5 on a $400 million underwriting deal.
Google (GOOG) got in on the action as well on news that it will acquire start-up AdMob, a mobile advertising firm, for $750 million stock. Acquirers normally fall on acquisition news, but the Street apparently thinks Google is getting a steal here and sent Google shares higher by $11.41 to close at $562.51. That's just seven cents off the 52-week high set earlier in Monday's session. Perhaps Google is getting AdMob for a song. Assuming Google trades around $560, $750 million requires only 1.33 million Google shares to get the deal done.
There were a couple of earnings reports out after the close that may give the Nasdaq a lift tomorrow. Video game publisher Electronic Arts (ERTS) said it earned six cents a share, excluding items, on sales of $788 million. The company gave a full-year forecast of 70 cents to $1 a share on non-GAAP revenue of $4.2 billion-$4.4 billion. Analysts are expecting earnings of 89 cents on sales of $4.28 billion.
Electronic Arts also said it will cut 1,500 jobs to save $100 million and that it acquired closely held Playfish, a social gaming firm, for $275 million.
Online travel firm Priceline.com (PCLN) delivered a more bullish report after the close. Priceline said its third-quarter profit tripled to $6.42 a share from $1.74 a year earlier as hotel room reservations rose 56%. Revenue soared 30% to $730.7 million. Analysts were expecting earnings of $2.92 a share on sales of $694 million. The icing on the cake may be Priceline's fourth-quarter forecast of $1.52-$1.62 a share, well above Street estimates of $1.49 a share.
Priceline started to pullback in October, but has rebounded and the stock is trading at $185.85 in the after hours session as I write this. That is well above the 52-week high of $182.32 and means there could be a big gap up at the opening of Tuesday's trade.
Looking at the charts, yes, it is good news for the bulls that Dow closed above 10000 again and turned in such a strong performance on Monday, but the real story is going to be the S&P 500's ability to break 1100. The index made a high of 1101.36 in October before declining and with Monday's close at 1093, the S&P 500 could break the October high as early as tomorrow.
The issue is not necessarily breaking 1100, it is holding there and then making another move higher. If the S&P 500 can do that, 1150 is a legitimate near-term possibility, while another failure at 1100 could send the index down to support areas at 1075 or 1050.
S&P 500 Chart
The Dow looks slightly more bullish than the S&P 500 and Monday's close of 10226.96 took the blue chip index well above the October high of 10119.47. That means the next significant hurdle for the Dow to clear may be in the 10320 area. The Dow may be far enough above 10000 at this point to consider that level first support.
Like the S&P 500, the Nasdaq is oh so close to a key resistance level, but I am referring to 2160, not 2200. The 2160 area has been a thorn in the Nasdaq's side for quite a while. Granted, the Nasdaq cleared 2160 in October only to fail at 2190, so the Nasdaq may need to walk to 2160 before it can run to 2200. If 2200 is cleared, 2250 could be the next target. A lack of earnings catalysts could hamper the Nasdaq's ascent in the near-term.
While earnings season is all but over, there also is not much in the way of negative catalysts, at least scheduled ones, that could knock stocks from their lofty perch. Look at things this way: If Friday's unemployment report was not enough to send the market lower, what is it going to take? There are only 35 trading days left in 2009. Figuring that the week of Thanksgiving will deliver light volume and the week before Christmas will likely show the same (probably the week after, too), it may be the bears that find themselves in even deeper trouble than they are already in.