The DJIA Comes Ever So Close To Setting An All-Time Record But Falls Short; Stocks Rally Off The Lows On More M&A Deals

May 9, 2007

Stocks started the morning off on the wrong foot after a very negative NAR report on home sales hit the market. Existing-home sales are expected to fall 3% and new-home sales are expected to fall 18% this year, according to NAR. This weighed on stocks early on.

However, dip buyers and sideline money went to work quickly after the first hour selling, as merger and acquisitions and rumors helped stocks continue to rally. RTRSY confirmed talks with TOC for a merger for $17.4 billion and FIG acquired FLA for $3.5 billion. Rumors that MT wants to buy AKS for $4.5 billion also made the rounds today. This helped stocks rally all day long after the gap lower and subsequent early morning selling. However, by the close, stocks could not quite finish green across the board and the possible all-time record of the DJIA for positive closes in 25 out of 28 sessions was missed by a mere 4 points.

At the close the Nasdaq reversed a .08% loss and closed slightly higher with a .03% gain. The DJIA barely missed setting an all-time record of green closes by closing .03% lower, the SP 500 and SP 600 lost .1%, and the NYSE lost .4%. The IBD 100 kept pace with the SP 500, losing .1%. This ended the streak of the IBD 100 leading. At least it didn’t lead to the downside. The best part of today’s price action was that the indexes reversed off their lows and all closed near their HOD.

Volume was higher on both exchanges, with volume up 14% on the NYSE and 15% on the Nasdaq. The higher volume coupled with the losses in the NYSE make this technically another distribution day for the NYSE. But the intraday reversal and the fact that the NYSE closed in the upper half of its intraday range makes it tough to really call this a hardcore distribution day. This is a half-arse distribution day to say the least. This is the third distribution day that has been on losses of .4% or less. This is also another distribution day that saw stocks come off the LOD. It is simply not real distribution but light distribution. Nothing to get worried about here. But we still have to count the numbers and this gives the NYSE its fourth distribution day in the past three weeks.

Despite the gains on the Nasdaq, breadth was negative on both exchanges. With decliners beating advancers by a 3-to-2 margin on the NYSE and the Nasdaq. The real weakness can be seen in the new 52-week highs. Despite the markets only being off around .1%, the new 52-week highs really contracted to a very low 297. There were 62 new 52-week lows which is a pretty decent expansion considering how little the market was down. So these numbers do continue to show the internal weakness of the market.

Nothing has changed that I have not talked about over and over and over the past week. If you read my past four to five post you will know everything you need to know about this market. With such a narrow range as we remain in this pre-Fed holding pattern there is very little to talk about. I have covered everything that matters in these post and if you just take a quick review of the previous five post you will know EXACTLY where we stand.

We have the FOMC meeting tomorrow and it is pretty much certain that the Fed is going to stay pat at 5.25%. This will be the seventh meeting in-a-row that the Fed has stood pat. What investors will be focusing on, instead, will be the wording in the statement. But, in my opinion, it doesn’t matter what the Fed says or does. I truly believe the Fed is irrelevant at this point, as inflation will be impossible to fully contain with all the stupid competition for commodities thanks to the environmental ethanol freaks. Also the Fed can not stop the great earnings that continue to come out of stocks thanks to the Bush tax cuts in 2003. The growth is not stopping and inflation is definitely not stopping with the runaway inflation in food prices.

CSCO reported earnings after the bell and beat estimates and provided bullish guidance. Yet the stock is trading down 6%, at the close of after-hours trading. This should weigh on the markets tomorrow. Aloha and I will see you in the chat room!!

Posted by Joshua Hayes | Filed Under Market Commentary