Gold Soars to New Highs; Stocks Up Big to Open Week

With earnings season about to begin, investors were jumping not only into stocks of all varieties, but especially into gold and other commodities in the first two trading days of the week, sprouting big gains in all sectors and sending gold to all-time highs above $1040 in NY trading.

The Dow and other major averages erased the losses of last week associated with the poor jobs data from September and began looking ahead to corporate earnings reports which begin on Tuesday with Yum Brands (YUM) and proceed into Wednesday with Monsanto (MON) reporting before the opening bell and Alcoa (AA) after the close.

As of this writing, YUM reported better-than-expected earnings of 69 cents per share in the third quarter, topping expectations of 58 cents per share, even though revenue slowed and same-store sales slipped 6% for the owners of Pizza Hut, Taco Bell and other national food outlets.

The moves in the market have been largely associated with a weakening dollar, which continues to delight stock traders but worries those who look at the macro-economic picture. A weaker dollar causes imports to cost more, wages to stagnate, but boosts profits on exports as their lower prices spur demand in foreign countries.

The greenback has been slumping of late, especially on Tuesday, as the Australian Central Bank increased key interest rates, saying that their economy was basically back on a sound footing. That sent the dollar index into a tailspin, boosting the price of commodities, in particular, gold.

Dow 9,731.25, +131.50 (1.37%)
Nasdaq 2,103.57, +35.42 (1.71%)
S&P 500 1,054.72, +14.26 (1.37%)
NYSE Composite 6,899.68, +104.55 (1.54%)

Stocks put in their second consecutive strong session, with all sectors positive and advancing issues beating decliners, 4965-1499, or better than 3-1. New highs were popping up everywhere, with 510 stocks making new 52-week tops, as compared to just 49 new lows. Volume was lighter than many trading veterans would have liked to have seen, though lower volumes have been a trademark of the now-7-month-old rally.

NYSE Volume 5,894,104,000
Nasdaq Volume 2,430,495,250

The commodity story was all positive, with crude oil advancing 47 cents, to $70.88; gold officially closing in New York up $21.90, at $1,039.70, and silver adding 76 cents, at $17.30.

Traders will be looking at earnings results from Monsanto (MON) before the market opens and will likely cheer the results of Yum! Brands, looking to go 3-for-3 in gains on the week.

Nervous Trading on Poor Employment Picture; Health Care Causing Problem

September's Non-farm payroll report was far worse than anyone expected, showing a loss of 263,000 jobs for the month when the market was expecting job losses somewhere around 180,000. Not only was the number far worse than expectations, it was worse than the previous month, a real break in the momentum of the recovery.

It has become increasingly clear that employers are not about to do any serious re-hiring or new hiring until the Congress gets off the entire health care reform kick. Legislation has been sloshing around the halls of Congress for months and have stalled, but, more importantly, business owners are holding back on hiring because of all the uncertainty, fearing increased costs or taxes on employees and the underlying businesses.

The longer Congress diddles with the health care issue, the longer the joblessness will continue in the USA. Also clear is that the Obama stimulus act of the Spring has not done nearly enough to boost recovery efforts. While the stimulus may have helped stabilize the situation, real job creation remains a distant mirage.

Also weighing on investors are the burgeoning foreclosures and number of Americans falling further into debt. Credit card and loan delinquencies are quickly reaching panic levels and unless those are somehow stemmed, the rally in stocks is going to be not only cut short, but trampled into dust. The level of fear in the marketplace has risen palpably over the past two weeks and especially over the past two days.

Despite the headline numbers from the major indices which showed marginal declines, the day on the market was actually much worse. First, a new short-term low was put in with stocks selling off right at the open. After a day-long rally back to positive territory, selling resumed just before the close, suggesting that Friday's trade was an unsafe bet heading closer to earnings season, though that will be preceded by Alcoa's earnings announcement on Wednesday and retail sales figures from the nation's largest vendors on Thursday of next week.

The technical damage done to the major indices over the past two days was significant, and, even though today's losses were modest compared to Thursday's massive selling effort, more damage was done today by the fact that the market did not properly respond to the horrible employment data. Because stocks set in a new low (9430 on the Dow, a 79-point loss) and closed near the mid-point of the day's trade, it created a situation similar to what occurred on Wednesday, when stocks put in a new low and finished well ahead of it. That telegraphed the next day's action, which, as we now know, was rampant selling.

Dow 9,487.67, -21.61 (0.23%)
NASDAQ 2,048.11, -9.37 (0.46%)
S&P 500 1,025.21, -4.64 (0.45%)
NYSE Composite 6,674.57, -43.48 (0.65%)

Simple indicators were a far better gauge of the damage than the closing numbers. Declining issues were ahead of advancers, 4253-2145 (2-1), and new highs tallied just 144, significantly lower than recent figures, while new lows ramped up to 59. Volume was lower than on Thursday, a real indication that the smart money was all-out on Thursday instead of waiting around and holding in front of the payroll data on Friday. Smart money is always out of the way first, and this seems to be the case currently.

NYSE Volume 6,468,782,500
NASDAQ Volume 2,385,079,250

Commodities were mixed, with oil trading down 87 cents, to $69.95; gold up $3.60, to $1,004.30; and silver down 21 cents, to $16.23.

As for the Dow components, reflected the bifurcated nature of the market, 19 were down and 11 closed higher, with IBM, Coca-Cola (KO), Merck (MRK) and JP Morgan Chase (JPM) providing most of the upside boost throughout the day. Without their participation, another triple-digit loss would almost certainly have ensued. Watch for those four to lead lower in coming days as their gains were largely unwarranted.

Today also marked the 7th day out of the past 8 that stocks have traded lower. The trend is clearly favoring the bulls right now and that sentiment should remain in place until some catalyst us found by investors to shake off the current funk. What that may be is difficult to fathom, the depth of distress caused by the reversal of the employment trend casting a heavy pall on the entire economic picture as the 4th quarter begins.

One technical note: this chart shows just how dangerous a position the Dow is at currently. The index touched its 50-day moving average today - something it hasn't done since the June-July timeframe. While it bounced right off it today - nobody in the financial media bothered to express this salient point - the prior period resulted in a very congested trading range to a small downside. The Dow could be in for a two-week consolidation period which may be sloppy and misconstrued as a return of the bear, though it's likely not. Look for a drop to the 9100-9250 range before earnings season begins in earnest.

Correction in Motion

Yesterday in this space, it was reported that the stock market was ripe for a major sell-off and that's exactly what happened after the weekly unemployment claims data and a worse-than-expected ISM report hit the Street.

Stocks opened lower and stayed down, erasing Wednesday's bottom by 10:00 am and never recovering. Eventually, all the major averages suffered their worst losses since July 2nd when the Dow was battered 223 points and the S&P declined 27, the same as today. The NASDAQ suffered worse than its counterparts, falling 3.06%, nearly matching the worst one-day loss since the start of the current rally, on April 20.

Thursday's action marked the sixth decline for the market in the past seven sessions. Economic news has been uniformly weak over the past two weeks, leading investors to take profits or abandon positions altogether.

Dow 9,509.28, -203.00 (2.09%)
Nasdaq 2,057.48, -64.94 (3.06%)
S&P 500 1,029.85, -27.23 (2.58%)
NYSE Composite 6,718.05, -192.83 (2.79%)

Simple indicators confirmed the widespread carnage. Declining issues outnumbered advancers, 5314-1139. New highs led new lows, 205-51, though the margin of difference has declined markedly over the past three sessions. Volume was very high, indicating that the losses are not about to end here, especially since the indices ended at their lows of the day.

NYSE Volume 6,905,833,500
Nasdaq Volume 2,751,787,500

Oil finished the day 21 cents higher, at $70.82, but that bucked the overall trend. Gold lost $8.60, to $1,000.70. Silver was down 22 cents, to $16.44.

With the September non-farm payroll data set to appear at 8:30 am, it was obvious that many investors did not want to get in front of that number. All indications are that it will not meet expectations of -175,000. Something in the range of -190,000 to -215,000 would be more likely.