Courtesy of Scott Martindale, Sabrient Systems and Gradient Analytics
Fear has subsided enough to let loose the bulls, which in turn has sent bears running for cover to add fuel to the rally. On Wednesday, an international effort to support global liquidity, along with a host of other positive headlines, got the party started. The Dow soared nearly 500 points to close just above the 12,000 level. This put the markets back near the flat line for both the month of November and for 2011 YTD–which in retrospect is a welcome result, indeed, given the huge price swings and pervasive fears of global economic collapse.
Energy and Basic Materials have led the rally this week, but it is Technology that now sits atop Sabrient’s SectorCast rankings of the 10 U.S. sector iShares.
On Wednesday, the Federal Reserve, ECB, and other central banks stepped in to shore up global money markets and ensure that European banks have sufficient funding, as government bond yields have surged. This is essential for keeping interest on debt at a manageable level. It followed China’s unexpected reduction in bank reserve requirements, intended to boost its somewhat sluggish economy.
The ten highest-yielding Dow stocks (a.k.a., Dogs of the Dow) are now yielding over 4%, which is more than double the 10-year Treasury yield, so stock valuations are low. Earnings reports, industrial production, payrolls, and consumer confidence have all been quite promising, so the only holdup has been Europe. Any sign of a possible solution to their debt crisis is an excuse for the U.S. stock market to rally.
The market now has some positive momentum as it enters the month of December, which is historically strong. With market essentially flat for the year, there is a chance for a net gain for 2011.
Despite good overall earnings reports this season, suspect earnings quality nevertheless has been the downfall of a number of stocks. Forensic accounting firm and recent Sabrient acquisition Gradient Analytics (http://www.EarningsQuality.com) saw a number of stocks that it had red-flagged fall after their earnings reports. Abercrombie & Fitch (ANF) and j2 Global Communications (JCOM) are two of the latest stocks that have taken a fall.
The SPY closed Wednesday right at the 125 level. After pulling a big turkey last week, with one of the worst Thanksgiving weeks ever, the market found enough positive catalysts to gap up on Monday, take…
