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Bulls Make Hay While the Sun Shines: Dave's Daily



There isn't any hard news regarding a "fix" for the euro zone from Sunday or even a likely plan done by Wednesday. It's off-putting to say solutions are complex but that's most of what we're hearing.

In the meantime bulls are jumping on some good data from China where the PMI rose from 49.9 to 51.1 and Japan where exports surged. Also in the U.S. there was more M&A activity than is reasonable to summarize here. The earnings lead was Caterpillar (CAT) where, despite earnings views being lowered three times over the past quarter, earnings beat estimates of $1.63 posting $1.93. Higher revenues for the company came from an increase in mining equipment sales.

Strong stock sectors were tech (XLK), financials (XLF), and materials (XLB) to name a few. In tech semi's (SMH), internet (FDN), software (IGV) and networking (IGN) were particularly strong. The dollar was once again weaker on rumors of French repatriation of dollar assets to assist with domestic bailouts. With China's report base metals (DBB) and copper (JJC) were also sharply higher along with crude oil (USO). Meanwhile bonds were weaker overall with the stock market rally. It doesn't hurt when bulls hear the Fed imply QE3 is still on the table.

In the losers department were cast-offs like American Airlines (AMR) and Eastman Kodak (EK) where bankruptcy concerns remain elevated. Kodak was a DJIA stock at one time. It shows what happens when companies are dropped from the index which has been done with more frequency lately. The index is price-weighted so stocks like CAT have a bigger impact as their prices surge. Currently there are a half dozen or so firms (IBM, CVX, MMM, MCD, UTX, and XOM) that can really push the index around and perhaps mislead investors. This is why most experienced investors focus on the broader S&P indexes, which while price weighted, give a broader view.

Volume was light compared with recent periods while breadth per the WSJ was quite positive.

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