Tuesday, June 9, 2009

The Uptrend Continues, For The Most Part

If you just looked at the DJIA or the S&P 500, you would think it was a very dead day. We didn't even have much of a swing for a change in the final hour but under the surface there was some very frisky action.

Volume was a bit light but breadth was solidly positive with about 3,450 gainers 2,250 losers. Semiconductors led to the upside following good guidance from Texas Instruments, and a weak dollar boosted energy and commodity stocks, but it was some of the low priced and thinly traded stuff that saw very aggressive action.

There certainly is some pretty solid technical action; even though the S&P 500 did little today, it has consolidated very nicely and is forming a good-looking base. There aren't any major technical flaws in this market and no reason to look for a sudden collapse. You have to stretch a bit if you want to find negatives.

The bears might argue that the small-cap action is frothy and indicates that traders are too complacent. A lot of junky stocks without fundamentals are running big. That is a reflection of people worried that they are missing out.

Another bearish argument is that semiconductors have typically rallied near turning points in the market over the last few years. Whenever the chips start to breakout, the overall market has turned back down soon thereafter.

Neither argument makes me want to rush out and load up on shorts. The upside trades are working and while it is pretty easy to argue that the market has gotten ahead of itself, we don't have any obvious weakness. One of the hardest things to do in the market is to stick with momentum when it starts to feel unreasonable -- but it is even more dangerous to over anticipate a turn.

The trend is our friend and it is still up.

Going into more detail, it was a quiet close for a change, with light volume (as usual). Amid light trading volume the stock market ascended into the afternoon, but petered out some of its gains into the close. Still, semiconductor stocks and materials stocks were able to finish markedly higher... Semiconductor stocks traded with sharp gains for the entire session, helping the Semiconductor Index climb 4.5%. Their upward move came after TXN raised its second quarter forecast. That announcement came just one week after the chief executive from AMAT made pessimistic comments about the semiconductor industry... The materials sector closed 2.3% higher, better than any other major sector in the S&P 500. Its advance came as commodity prices climbed amid a falling U.S. dollar, which dropped a sharp 1.4% against a basket of major foreign currencies... The dollar's decline was particularly helpful to crude oil contracts. Oil prices advanced 2.7% to settle at a 2009 closing high of $69.92 per barrel. That helped oil equipment stocks climb 2.1% and oil drillers close 2.5% higher... Financial stocks (+0.5%) finished in mixed fashion following the Treasury's announcement that 10 of the 19 largest U.S. banks will be allowed to repay TARP funds. BBT, USB, BK, AXP, NTRS and GS are among the companies that have received permission to repay TARP funds to the Treasury. Diversified banks tacked on 0.6%, but diversified financial services companies slipped 0.2%... A $35 billion auction of 3-year Treasury Notes with a yield of 1.96% attracted a bid-to-cover ratio of 2.8. The benchmark 10-year gyrated in the wake of the announcement, but settled a few ticks higher with a yield of 3.86%. Stocks were hit with some selling pressure following the announcement, but the downward move was lost in the stock market's intraday gyrations... Trading volume was exceptionally light this session, with slightly more than 1 billion shares traded on the NYSE.

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