Intel Lights A Fire. Dow Over 10,000

Charts: The S&P 500 closed at 1092, up 1.8%. The index blew past resistance at 1080. The big boys had been waiting out the most recent rally to see Intel’s earnings. Liking what they saw with Intel’s report, institutional investors hit the buy button today and volume now looks better. The Dow closed above 10,000 which was a significant resistance level. Retail investors pay attention to the Dow. If the Dow holds above 10,000 as we move out of the treacherous month of October and into the seasonally strong Santa Claus months, individual investors should pile on.

Fundamentals: Intel reported blowout numbers top and bottom line. It said PC sales are ramping up. Intel is a bellwether. Its beat last earnings season ignited a big rally and this is where we want to see leadership, from tech. American retail sales came in better than expected even though consumer credit is shrinking. Tired of being frugal, Americans are opening up their wallets and paying cash. China’s recent industrial weakness does indeed look like an “air pocket” because it reported an improvement in exports. The dollar continues to plummet and oil keeps surging. Oil’s unending rocket ship ride up carries obvious danger to the bull market. Material stocks and resource rich country ETFs like Brazil, Canada, and Australia are a hedge against this danger. Brazil=EWZ and BRF. Canada=EWC. Australia=EWA.

Geopolitics: The fruits of America’s first victory in the Long War are ripening. Iraq is slowly forging deals with the Western oil majors to develop its vast oil fields. Iraq has so much oil it could singlehandedly drive down global energy costs once the majors are 100% on board.
America’s allies in the Afghan war are aware of President Obama’s game of waiting for healthcare to pass before getting serious about Afghanistan. To goose the reluctant commander-in-chief, some of our stronger European allies are planning their own troop increases. Britain says 500 new troops are being considered. Georgia is planning on sending an entire 1000-troop battalion straight into the nastiest region of Afghanistan, Helmand Province. Macedonia and others are also ponying up dozens of fresh soldiers. American opinion polls are unexpectedly strengthening in favor of the troop request. But the favorable turn is due almost entirely too Republican support, which is sky-high. It would be better if Demos jumped on board. Nevertheless, pressure is increasing on Obama to make his decision sooner rather than later. If the troop request is granted before healthcare passes, then healthcare might not pass (bullish). Let’s not get overly excited, but the market loves more guns and no butter.

Specific Stocks: At long last we now know how China is going to shut down its thousands of inefficient small steel mills, by modifying its tax code to encourage big mills to buy up and close small mills. Since China will soon produce 50% of global steel, this long awaited change will rock the global steel industry with countless ramifications. Let’s talk about just one today. Brazilian iron ore is higher grade than Australian ore and better for the smaller mills that will be closed. Australian iron ore is closer to China, takes less fuel to transport over the sea, and the big mills like it. So the surge in oil prices and closing of small mills helps Australian miners Rio Tinto (RTP) and BHP. BHP and RTP are jointly developing mines in Australia, which disproportionately helps RTP. Material stocks should be balanced with tech. SMU is a good Semiconductor index.