Concerns about any serious spillover from Friday's selloff proved unfounded Monday as major averages shrugged off a weak opening to end with decent gains.
Dow Jones Industrial Average
added 0.3% to 10,491.42, while the
gained 0.6% to 1177.20 and the
added 0.7% to 2084.86. Strength in energy, insurance and steel paced the market while semiconductors and electronics retailers lagged.
rose 1% to $50.91, marking a new 52-week high, while
skied 11% to $61.35 after Piper Jaffray nearly doubled its target price for the stock to $100. On the flip side,
slipped 0.3% to $24.10 and
fell 2.2% to $59.
Volume was relatively light but twice as many stocks rose as fell on the
New York Stock Exchange
. Nasdaq trading was more evenly split although gainers were the majority.
How much further will the rally go in the short term?
Jeffrey Saut, managing director of investment strategy at Raymond James, is warning that the end of the short-term run is near.
Before Monday's trading, the Dow had gained 700 points over the past 19 sessions. Looking at historical returns, Saut found that the average move up after such breakouts lasts 17 to 25 trading sessions, so the "stampede" was getting long in the tooth, he wrote Monday.
"While it is difficult to envision a whole lot of sellers around for this holiday-shortened week, we have learned to have a 'hair trigger' on any long trading positions beyond this point in the day-count skein," he concluded.
Notably, Saut called the beginning of the current market surge back on Oct. 25 when the Dow made a new low for the year at 9660; however, he started preaching defense about the current move on Nov. 8 -- prematurely it turned out.
Schadenfreude Is a Boomerang
Saut also posted a sobering chart of the return of the Dow over the past three years, denominated in euros. While the Dow was up 4.4% in dollar terms from year-end 2001 though the end of last week, it was down 30% in euros because the dollar has lost so much in value.
Who cares what return say a German or Spanish investor earned? According to Saut, all U.S. investors ought to care because foreigners have been funding our savings shortfall and propping up the markets.
"Should they tire of doing so, that burden will fall back on Americans and we will be forced to either: one, finance it ourselves; two, reduce consumption; or three, create more inflation," he wrote. "I doubt any of these alternatives will be secularly bullish for U.S. financial markets."
Saut remains bearish on the dollar but sees a possible short-term rally on comments over the weekend out of the G20 meeting.
On Monday, the dollar spent the day meandering around its recent lows. The euro traded for $1.3042 vs. $1.3027 late Friday and slightly below its all-time high of $1.3074 set last Wednesday. The dollar increased slightly against the yen, rising to 103.19 vs. the near five-year low of 102.7 it hit Thursday.
The G-20 statement didn't discuss the dollar's decline, creating doubt that many countries might intervene to stem the rise in their currencies. But one Japanese finance official was quoted over the weekend saying that the yen rise was "too rapid."
Ironically, the U.S. Treasury market has gotten more of a boost from potential Japanese intervention than the dollar has. On Monday, the yield on the 10-year Treasury note fell to 4.17% from 4.20% on Friday.
The theory is that when the Japanese act to weaken the yen, they'll buy dollars and invest the proceeds in Treasury securities. Last year and into the first quarter, for example, the Japanese sold more than $300 billion of yen. Partially as a result, Japan owned $720 billion of Treasuries at the end of the third quarter, more than any other country, according to the
Recall that the 10-year hit its low yield for the year in March just before the Japanese intervention came to an end.
Oil prices fell on Monday thanks to predictions of warmer weather in the Northeast and slower economic growth worldwide. The International Monetary Fund sliced its 2005 growth forecast to 4% from 4.3%. Crude futures lost 25 cents to $48.64. Still, oil stocks were mostly higher as
gained 1.7% and
The real action on Monday was in coal shares, which led all comers by a hefty margin. After being the subject of a positive article last week in
The Wall Street Journal
, the coal sector caught a boost from a Saturday
New York Times
story. Energy companies have announced plans to build more than 100 new coal plants, the paper reported.
"Running a coal-fired plant in these times is a gold mine," Robert McIlvaine, a coal industry consultant, told the newspaper.
Coal has also been stoked by the Bush reelection. The administration's environmental policies have eased the way for the building of all those new plants.
was up 6% on Monday and by 27% since the election,
was up 6% Monday and 17% since the election, while
was up 2.7% and 16%, respectively.
In theory, coal companies could also benefit from the weakening dollar by exporting more coal. But U.S. coal exports have been a long-term decline since 1998 when 78 million so-called short tons were sold outside of the country, according to the Department of Energy.
Coal exports slipped to 58 million tons in 2000 and 43 million last year. In the first half of 2004, exports were running slightly ahead of last year's pace but it's still a pittance given total U.S. production of 963 billion tons so far this year.
On the other hand, some of the decline for the past few years has related to the strengthening dollar and the Chinese keeping their own currency artificially undervalued to gain export market share. The reversal of those trends ought to help at the margin.
So if Fed chairman Alan Greenspan was correct
Friday about the dollar's further decline, maybe investors will be getting a most welcome lump of coal in their stockings this holiday season.
In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send