Fiscal Cliff Hope Fest Pushes Indexes Higher, But On Very Low Volume; Europe Surges

[Chart courtesy of MarketWatch.com]

US stocks surged Monday to log their biggest single-session gain in months on positive housing data and increasing investor confidence that a budget deal would be reached in Washington. Mind you that a deal is pure hope at this time, and I have my doubts that total cooperation without any battle will actually be feasible.

Wall Street got an early boost after a National Association of Realtors report showed existing home sales grew at 2.1 percent to an annual rate of 4.79 million in October despite the impact of Hurricane Sandy.

Separately, the National Association of Home Builders/Wells Fargo index of builder’s sentiment advanced for a seventh straight month to 46, the highest since May 2006.

The Dow Jones Industrial Average (DJIA) jumped 208 points, posting its biggest gain since early September with all its 30 components rising and financial stocks gaining the most.

The S&P 500 Index (SPX) surged 27 points with consumer sectors gaining the most and all the 10 business sectors but utility closing higher.

Treasuries drifted lower, pushing up yields of 10-year notes from a two-month low as optimism grew that politicians will find common ground to avert going over the fiscal cliff by end of the year.

The US dollar eased against most of its rivals as investors turned cautiously upbeat about a compromise on the impending budget negotiations in Washington, diminishing the US dollar’s safety related appeal.

Meanwhile, European stocks rallied Monday after President Barack Obama expressed confidence that the fiscal situation will be dealt with while addressing a news conference in Bangkok on Sunday.

The Stoxx Europe 600 index vaulted 2.2 percent to post its best performance since September 6, the day ECB president Mario Draghi announced plans to buy sovereign bonds from the secondary markets.

The DAX 30 index jumped 2.49 percent in Frankfurt, lifted by Commerzbank AG and Deutsche Bank AG that gained 4.6 percent and 3.94 percent, respectively.

French banks also traded higher, with Societe Generale and Credit Agricole SA rising 5.5 percent and 5.2 percent, respectively. The CAC 40 index gained 2.93 percent in Paris while the FTSE 100 index jumped 2.4 percent in London.

In the ETF space, commodity prices, except natural gas, rallied as the US dollar eased over improved risk sentiment. Gold futures rose 1.2 percent while crude futures settled just below the $90 a barrel mark. The iShares Silver Trust (SLV) was one of the biggest percentage gainers, adding 2.69 percent for the day. The Dow Jones-UBS Copper Total Return Sub-Index ETN also surged, adding 2.27 percent for the day. The United States Oil Fund (USO) rallied 2.23 percent after oil futures for January delivery finished 2.7 percent higher.

The Invesco PowerShares QQQ fund (QQQ) that tracks the NASDAQ 100 index also jumped, rising 2.38 percent on the day. Better-than-estimated existing home sales in October boosted homebuilder related funds. The State Street SPDR Homebuilders ETF (XHB) gained 2.01 percent on the day.

Europe related funds also advanced with the Vanguard European ETF (VGK) surging 2.51 percent after equity averages across Europe headed higher on US budget hopes.

In regards to trends, our Trend Tracking Indexes (TTIs) bounced off their trend line and ended the day as follows:

Domestic TTI: +1.04%

International TTI: +2.41%

Today was a combination of an oversold market meeting hope in terms of a fiscal cliff resolution. Whether that actually comes to fruition remains to be seen, but I doubt that any potential compromise will go down without a fight given the nature of politicians in general. We may have seen nothing but a dead cat bounce, most of them which are ephemeral in nature.

Disclosure: No holdings in ETFs discussed

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About Ulli Niemann

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