Another pretty decent day, with the major indices all recording slight gains. The Dow finished higher by 32 points (+0.3%) at 11043. The S&P 500 was up 4 points (+0.4%) to 1294 and the Nasdaq registered a gain of 11 points (+0.5%) to 2331. The Russell 2000, however, was flat on the day at 711. The Dow Transports lost ground again, dropping 0.5% and the Utilities were lower by 0.3%. Bonds also had another rough session, pushing interest rates up even further: 6-month = 4.43%, 2-year = 4.42%, 5-year = 4.39% and 10-year = 4.45%.
Market internals were generally positive, and volume was again strong. Advance/declines were 5 to 4 on the NYSE, and the Nasdaq A/D line, in the red nearly the entire day, snuck back just above the flat line before the close. Up/down volume was 3 to 2 on the NYSE and nearly 2 to 1 on the Nasdaq. New highs/low still looking good at 297/39 on the NYSE and 216/24 on the Nasdaq.
Looking at the groups, we find computer hardware (+1.9%) at the top of the list, followed by semiconductors (+1.7%), brokers (+1.1%) and telecom (+1.0%). The big losers on the day were the airlines, tumbling 3.8%, followed by chemicals (-1.0%).
Energy prices, which dipped after the morning inventory report, surged higher as the day wore on, with crude oil finishing back up near $64/barrel. Unleaded gasoline is at $1.74/gallon and natural gas at $9.27/mBTU. The dollar index dropped another 0.4% to 89.00, and gold moved back above $547/ounce.
BMB Note: Things still look fairly good, but just a few things to keep an eye on: oil prices back up today, and interest rates have risen for 4 or 5 days in a row now. The Nasdaq is up 7 days in a row, the Dow and S&P are up 6 of 7 days. There’s some piling on going on in the tech area - some of those stocks are going to be ripe for profit taking any day now. Transports, which helped lead the market up in November, peaked on December 27th and have been slipping since. Also in the transports, the strong airlines look to be strong no more - likely victims of some group rotation.
When it comes to buying in this environment, it’s time to be very careful around some of those ‘hot’ stocks - for example, some of the tech names: AAPL, up 8 bucks in two days. GLW, a $20 stock up 5 bucks in 5 days. BRCM and MRVL, each up 12 bucks in 7 days. RMBS, a $16 stock nearly doubling in 7 days. You know what I’m getting at - these stocks have gotten very extended very quickly. If you feel you must be in these stocks, have a little discipline and wait for pullbacks to buy. You don’t want to be the last one in, holding your brand new shares when the profit taking begins. In good times and in bad, the latest ‘hot stocks’ become a source of funds to put into the next ‘hot stocks’ when they come along. Ask the folks that were the last ones to buy the airlines how they feel today. If you already hold some of those ‘hot’ stocks, congrats - and you might want to think about ringing the register on a few shares to lock in your profits.
Smart investing is about weighing risk vs. reward, and trying to put most of the odds in your favor whenever you can. We now have the Nasdaq up 7 days in a row, and the major indices all reaching into overbought territory. Take your time, and wait for the opportunities to come to you rather than forcing the issue when risk has picked up significantly.
