Equity Markets Drifting

The S&P 500 (+13.07 +1.58% to 838.51), DJIA (+141.53 +1.78% to 8078.36), and NASDAQ Composite (+21.87 +1.46% to 1516.30) were all much improved on Tuesday. But, the action was probably the quietest +1.6% rally in recent memory. Perhaps it was the continual selling pressure in the financial sector (XLF), dampening bullish spirits, but the drift up into the close, while broadly based, was still less than impressive.

The Toronto Composite (+3.80 +0.04% to 8628.63) went nowhere and the Venture Board (-3.57 -0.41% to 869.25) pulled back a bit. That’s still a rise of +2.3% in eight sessions for this index of high-risk stocks.

Earlier in the day today, the European bourses were strong. By 8:00am ET, the French CAC had gained +1.20%; the German DAX +1.03%; and the UK FTSE 100 +0.50%.

Today also, the Asia-Pacific equity markets were strong except for Australia (-1.94% to 3382.3). The Nikkei 225 (+2.73% to 8038.9); Hong Kong (+2.25% to 13063.9); and India’s Sensex BSE 30 (+0.57% to 9201.9) were much higher. Shanghai (+2.28% to 2107.8) is up almost +5.0% in two days.

Yesterday in NY, there were many winning sectors, led by Consumer Discretionary (XLY). Only Financials (XLF) held the market back, mostly due to the Banks ($BKX -5.2%). The Biotechs ($BTK +3.7%) were strong. Corporate earnings there are somewhat better than expected.

Oppenheimer banking analyst Meredith Whitney made another appearance on Bloomberg TV toay to say that the Big Three US Banks (Citi (C), Bank of America (BAC) and JP Morgan (JPM)), which essentially are behind 95% of the credit derivatives market problems and probably create two-thirds of credit in the US are still a mess.

The Goldminer index ($XAU) was flat.

As for the Cara 100, the winners included an eclectic group: Deutsche Bank (DB); Target (TGT); Bed, Bath & Beyond (BBBY); ABB (ABB); and Nucor (NUE). Banking, retailing, infrastructure and steel. Hmm.

The losers were led by SanDisk (SNDK -23.2%) on huge volume (+309% of average daily volume), as traders did not like the reported earnings or guidance. There is a lot of arbitrage going on here for a potential deal, so most of the public is best to avoid trading this stock.

I’ll cut this short so I can catch the open. But, I feel that precious metals, oil and US equities will hold their support levels at this point. Traders are looking to the Administration and the Fed to resolve the crisis at the Big Three banks. Until then, volume ought to remain low and prices stay in a narrow trading range.

Commentary from the CTAB trader’s conference call:

The drifting action of the equity market does not preclude a strong rally erupting from these levels; possibly large pools of capital kept the pressure on the financial sector to camouflage their true intentions, as they steadily accumulated shares in other sectors.

Once institutions step up, leaving large volume footprints on upside break-outs, we shall all be able to breathe a little easier. Patience. Patience. Patience.

One laggard sector that was bid up all day was the homebuilders (XHB), based on the strong Pending Home Sales index for December. But, that’s hardly a confidence inspiring leading sector.

Bonds returned to the doghouse yesterday as details of future borrowing needs are being discussed daily in the media, and this chatter probably contributed to the downward pressure on the US dollar.

Apple (AAPL) is on the radar for possible additional purchases as we observe the action to determine whether it can break out above the 89 day average (currently just shy of 93) and hold above the declining daily trend line from September, which held earlier today around 90.5.

Wal-Mart (WMT) had a nice pop today and we may add to shares if it trades back down to 47. We don’t think it will be a leader, but may be good for a trade.

Was that a high volume wash out in Dow (DOW)(DOW +2.71% on huge volume of 45.6 million shares) on a negative earnings report? Just asking.

We are waiting to see if this rally can gain traction today and accelerate on volume.

Boring, but maybe necessary, as time is needed to heal all wounds.

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