What A Relief Rally Looks Like

  • A “relief” rally, marked by an absence of bad news, sent stocks higher
  • Traders enjoyed good news from Germany and hope for an end to austerity
  • All eyes today turn to Apple’s new product conference announcements
  • Asian Markets, led by Japan, extended the rally today

Stocks started strong yesterday and did not look back. It’s called a “relief rally,” a day when traders are relieved to see no more bad news hitting the market and decide it is safe to buy.

The Nasdaq (INDEX:COMPX) led the way, up 2.73% or 128.01 to finish at 4,812. That index is now positive for the year. The S&P 500 (INDEX:SPAL) was up 2.51%, or 48.18 to finish at 1,969. The Dow was up 2.43%, or 390.50, to finish at 16,493.

Asian markets extended the rally today with Japan's Nikkie leading the way. Nikkie jumped 7.7%, its sharpest advance since 2008, to close at 18770.51. China's Shanghai Composite Index also continued its advance with a 2.7% rise.

We are not where we were. The Dow remains 1,000 points below its highs, achieved last month, while the S&P remains 108 below its one-month high and the NASDAQ remains 300 points below its highs. The Volatility Index or VIX fell 10% to finish at 24.77, still elevated, but the lowest reading since August 20.

Apple in Focus

Shares of Apple (NASDAQ:AAPL)  increasingly match the moves and moods of the market, and yesterday was no exception. The shares were up 2.78% on the day, or $3.04, to finish at $112.31, then fell slightly in after-hours trading.

Tomorrow’s big event will be a news conference where Apple announces its new fall line, including new iPhones with better cameras, a new iPad and a new Apple TV. These events in the past moved the market, at least in Apple stock, but now they no longer do. People expect Apple to do big things, and they’re no longer surprised by it.

Germany Powers the Market

Germany led the way yesterday, with the DAX up 1.61%, but it was the data coming out of Germany, and the prospect for more, that really got people excited. The German trade surplus hit a record high in July of $25.6 billion, with exports up 2.4% and the current account balance also rising more than expected. 

But that was just one piece of the story. With energy prices remaining low, and supplies becoming more diversified with the U.S. about to start natural gas exports through Cheniere Energy (NYSEMKT:LNG), manufacturing has a chance to grow. The flood of Syrian refugees into the country also means the government is unlikely to continue the policy of austerity that has restricted growth across Europe.

European regulators finally approved General Electric (NASDAQ:GE) purchase of Alstom’s gas turbine business,  and the timing was auspicious for the company. GE shares rose 4%, finishing at $24.95.

Hot Stocks Get Cold

Some of the hottest stocks of the last year turned cold during the day. Netflix (NASDAQ:NFLX) lost 3.89%, or $3.84, to finish at $94.95. The stock actually started on the up-side, but traders took profits on reports that Apple may launch a streaming service and that major networks like CBS (NYSE:CBS) and Walt Disney (NYSE:DIS) ABC want to go “over the top.”

Alibaba (NYSE:BABA), the Chinese e-commerce company, was another big loser, falling almost 4.68% to finish at $60.93. That company is now trading 35% below the first trade recorded after its IPO, last September, which was at $93.89. Since then U.S. rival Amazon.Com (NASDAQ:AMZN), which was supposed to be threatened by Alibaba’s rise, is up 56% and finished the day at $517.84, up another 3.72% and less than 5% below its all-time high of $537, reached in early August.

So What Happens Now?

U.S. and European market fundamentals coupled with Asian market rally would indicate a higher open, but there are always excuses when the market falls. China could continue to struggle, or traders might get antsy over the Federal Reserve’s decision on interest rates due in the middle of the month. Sudden moves in energy and commodity prices, in either direction, could unsettle the market.

What traders most want to do is digest the good news and catch their breath before moving forward, but that’s what is most unlikely to happen. If it does happen, that may be an even more bullish sign for the future than an outright rally.

Dana Blankenhorn Dana Blankenhorn   on Amigobulls :

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