Note: I will be out of town attending the Online Trading Expo in New York this weekend. Due to time constraints, today's column will be my final one until returning Wednesday evening. I hope to see some of you there! All my best, Toni
Good day! OK, so the headline may be getting a little worn since it's been nearly three months since the Dow Jones Industrial Average ($DJI) has actually managed to close under its 20-day moving average. Nevertheless, it's one we've seen yet again with Wednesday's action... The indices have made yet another multi-year high! In the S&P 500 it marks another milestone: a rally of over 100% in less than two years.
Dow Jones Industrial Average (Figure 1)
Wednesday's economic data had little impact on the session's price action.
The latest housing data revealed that the number of housing starts in January rose more than expected, but permits for new construction were weaker. Housing starts were up 14.6% to a seasonally adjusted annual rate of 596,000 units, but building permits were down 10.4% to an annual rate of 562,000 in January. The Mortgage Bankers Association's seasonally adjusted index of mortgage applications and refinances fell 9.5% last week.
January's Producer Price Index, which measures wholesale inflation, rose slightly more than expected to 0.8% in January to come in slightly ahead of expectation. The Core Producer Price Index, which excludes the volatile food and energy prices, rose 0.5%. Analysts were expecting an increase of 0.2%.
U.S. industrial output fell 0.1% in January, while capacity utilization fell to 76.1%. This was lower than analysts' expectations.
As expected, it was strength in technology shares that played a major role in Wednesday's gains. Dell (DELL) beat earnings expectations following Tuesday's close and more than half a dozen brokerages raised their price targets for the stock. This resulted in a gain of nearly 12% on the day. As a bonus to daytraders, a very large portion of the day's gains took place after the opening bell.
Research In Motion (RIMM) also had a strong intraday trend following a gap higher thanks in part to an upgrade by Citigroup.
Other stocks to make headlines outside the realm of earnings and upgrades included Borders Group, which is the second-largest book store chain in the U.S., Genzyme (GENZ), and NYSE Euronext (NYX).
Borders formerly filed for Chapter 11 bankruptcy and announced plans to close 30% of their stores nationwide.
Meanwhile, the anticipated buyout of Genzyme (GENZ) by French drugmaker Sanofi-aventis was formerly announced prior to the opening bell.
Also on the merger and acquisitions front was NYSE Euronext (NYX) who confirmed that it will join Germany's Deutsche Boerse to become the world's largest exchange.
S&P 500 (Figure 2)
From a technical standpoint, the rally on Wednesday actually began late Tuesday afternoon following Dell's (DELL) news. This created the breakout move from Tuesday's trading range, which was also a larger trading range on the 30 minute charts.
The index futures then began to congest along highs from approximately 22:30 ET on Tuesday night until Wednesday's opening bell. Within that congestion were two major corrections off the highs of the trading range. Each pullback was slower than the previous upswing and the second pullback, which began around 4:00 a.m. ET on Wednesday morning, was slower than the first. This price action favored an upside resolution to the range and it was easier for the indices to push higher out of the open than to attempt a strong selloff.