The Rally Monkey Feasts On Tech Earnings, Bernanke Testimony; PXQ Soars, GDX Sinks

[Chart courtesy of MarketWatch.com]

US stocks extended gains for the second day in three as earnings by tech stocks lent an assist in helping the rally of the indexes to continue for the time being.

The Dow Jones Industrial Average (DJIA) jumped 103 points with chipmaker Intel Corp (INTC) posting its biggest single-session gain since November 30. Not that Intel performed that great; it was simply not as bad as expected.

The S&P 500 Index (SPX) rose 9 points with the tech sector fronting the day’s gainers while financials and consumer staples were the only decliners among its 10 business sectors. The forecast remains cloudy with Europe presenting a constant worry while the global slowdown adds to general nervousness.

That brings up the question “Is the S&P 500 approaching a top?”

Technically speaking, this chart makes a case that severe resistance lurks at the 1,375 level. I agree with the idea that fundamentally there is not much driving this market; it’s supported by pure hope and wishful thinking that the Fed will unleash another round of QE. If that does not materialize, the major indexes may very well hit the skids again.

The benchmark 10-year note yields remained range-bound; trading within five basis points of all-time lows after Chairman Bernanke said economic activity remained weak in the first half of the year while appearing before senators in Capitol Hill, increasing the allure of safe-haven assets.

He appeared more dovish than some people had anticipated when he said economic growth has been “modest to moderate” in the first six months with “tepid” job growth in June and early July, and the Fed is ready to take action whenever appropriate. The yield on 10-year notes dropped one basis point to 1.48 percent while yield on 30-year bonds also declined one basis point to 2.6 percent in late afternoon trading.

ETFs in the news:

Amid a wide rally in tech stocks today, tech-linked ETFs surged ahead, led by the Invesco PowerShares Dynamic Networking Portfolio (PXQ). The fund was among the day’s top performers after one of its top 10 holdings fiber optic cable-maker Amphenol Inc (APH) soared 16 percent on the day. Other top holdings of the fund like VMware (VMW) and F5 Networks (FFIV) leapt 12 percent and 8 percent, respectively.

Other tech-related funds like the State Street SPDR S&P Semiconductor ETF (XSD) also made solid gains, jumping 3.43 percent on the day.

Ahead of tomorrows EIA report on natural gas stockpile, the United States Natural Gas Fund (UNG) emerged on top among non-leveraged funds. Many analysts believe natgas prices have bottomed out and it can only go north now as demand from truck operators and utilities pick up due to prevailing low prices and an approaching winter. Natgas surged 6.1 percent on the day as commodities emerged winners across the board.

As gold futures prices tumbled more than one percent on the day, it’s the miners that bore the brunt. Precious metals were on the back-foot, retreating for the third consecutive day as Bernanke failed to offer any specific plans for QE-3 even though he said the options remain open. The Van Eck Market Vectors TR Gold Miners ETF (GDX) lost 1.39 percent, featuring among the day’s top non-leveraged percentage losers.

Our Trend Tracking Indexes (TTIs) improved with the Domestic TTI now sitting at +3.04%, while the International TTI is still stuck in bear territory by -1.99%.

Disclosure No holdings

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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