That’s Quite a Rally…

Posted by Mark Leibovit - VRTrader

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**Note: Mark Leibovit will be speaking at Michael Campbell’s Gold & Precious Metal Conference October 23 in Vancouver!


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Financials led the stock market lower yesterday along with a disappointing jobs report, but a rally in the final hours recovered most of those gains. The Dow had traded down as much as 72.54 at about 3:00 pm Eastern but managed to close down just 1.51 at 11094.57. The S&P was down 11.38 but finished with a loss of just 4.29 at 1173.81. The NASDAQ fell 5.85 to 2435.38, but had been down as much as 19.16.

As I mentioned, Financials (XLF -1.78%) led yesterday’s decline. Remember, Financials was the only sector not to hit a new high on Wednesday. A sharp rise in foreclosures and the continuing “robo-signing” foreclosure scandal is hitting the sector. On Wednesday, officials in all 50 states unveiled a joint investigation into mortgage companies’ conduct during foreclosure proceedings. Some big banks like Bank of America and J.P. Morgan Chase have placed moratoriums on foreclosures. Meanwhile, the number of homes taken over by banks topped 100,000 for the first time in September, though foreclosures are expected to slow in coming months as lenders work through questionable paperwork, real estate data company RealtyTrac said on Thursday. Banks foreclosed on 102,134 properties in September, the first single month above the century mark, RealtyTrac said. There were 347,420 total foreclosure filings in September, 3 percent higher than August and 1 percent higher than a year earlier. BAC fell 5.19% and JPM declined 2.81%.

Materials (XLB -0.95%) was the second biggest declining sector as all top ten holdings declined, despite the rally in precious metals, as industrial metals finished down despite rising initially.

Technology posted a small gain (XLK +0.04%) on a potential acquisition of Yahoo by AOL and rumors of a takeover of EMC by Oracle (see stories below). The only other sector to post a gain yesterday was Consumer Staples (XLP +0.04%).

The market has staged quite a rally over the last month and a half. I still have an upside projection to the April high of 1219.80 on the S&P. You may have noticed that the Nasdaq 100 (NDX) already took out the April high of 2059.42 on Wednesday when it hit 2067.06. Also, into new highs as compared to April are the XLP (Consumer Staples ETF) and XLU (the Utilities ETF).Yesterday morning, I wrote: “I would expect to see a retracement by tomorrow or the latest Monday.” Well, we saw a retracement yesterday and there still may be more weakness to come in the next two session. I added that this retracement would be “within the context of an uptrend that I’ve predicted will carry us back to the April highs.” Maybe you used yesterday’s correction to add to positions and now you’ve already made money on the trade. When the trend is up, as it is now, it pays to be long and to buy on pullbacks. Support in the S&P 500 is 1166.70 followed by 1159.00 and, worst case, 1134.00. It’s happened before and I guess its happened again that September and October were not negative months at all. Of course, we’ve got two more weeks this month to find out for sure. I suspect the market will hit a top into or just following the November 4 election possibly hitting the April highs at that time.