Stocks Experience “Band Aid” Rally

Stocks rebounded on Thursday as hopes increased that Congress would “kick the can down the road” once again.

Stocks skyrocketed on Thursday as a result of a proposal by House Republicans to raise the debt ceiling just enough to push the default deadline from October 17 to November 22. The proposal did not address the issue of the government shutdown. Nevertheless, whenever Congress manages to kick the can down the road, the stock market responds as though it were a major accomplishment.

The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 323 points to finish Thursday’s trading session at 15,126 for a massive, 2.18 percent advance. The S&P 500 (NYSEARCA:SPY) also jumped 2.18 percent to close at 1,692.

The Nasdaq 100 (NASDAQ:QQQ) soared 2.17 percent to finish at 3,210. The Russell 2000 (NYSEARCA:IWM) skyrocketed 2.50 percent to end the day at 1,069.

In other major markets, oil (NYSEARCA:USO) jumped 1.50 percent to close at $37.10.

On London’s ICE Futures Europe Exchange, December futures for Brent crude oil advanced $2.81 (2.60 percent) to $111.08/bbl. (NYSEARCA:BNO).

December gold futures sank $22.50 (1.72 percent) to $1,284.70 per ounce (NYSEARCA:GLD).

Transports were the only things flying above the temporarily-shutdown Area 51 on Thursday, with the Dow Jones Transportation Average (NYSEARCA:IYT) soaring 2.32 percent – breaking the neckline of the head-and-shoulders pattern on the IYT chart (which had signaled a potential decline). After closing at $118.22 on Thursday, IYT is now back above its 50-day moving average of $116.12.

Japan had a “capex rally” on Thursday, as capital expenditures soared during August. Machinery orders jumped 5.4 percent higher than July’s total – more than twice as high as the expected, 2.5 percent increase. Japanese stocks got an extra boost as the yen weakened against the dollar while hopes increased for a resolution to the deadlock in Washington. The exchange rate for the yen fell to 97.78 per dollar just before Thursday’s closing bell in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average jumped 1.12 percent to 14,194 (NYSEARCA:EWJ).

In China, stocks declined as a result of an anticipated slowdown in corporate earnings growth. The financial sector – especially the brokerage subsector – was hit particularly hard. The Shanghai Composite Index sank 0.94 percent to close at 2,190 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index declined 0.36 percent to end the session at 22,951 (NYSEARCA:EWH).

As usual, events in the United States were reported as being the controlling influences in the European stock market. According to the ethnocentric consensus, the European stock markets had a “hope rally” on Thursday, as the world awaited resolution of the deadlock in Washington.

The Euro STOXX 50 Index finished Thursday’s session with an enormous, 2.23 percent leap to 2,969 – climbing further above its 50-day moving average of 2,848. Its Relative Strength Index is 65.25 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 crossed back above its 50-day moving average of 1,678 after finishing Thursday’s session with a 2.18 percent surge to 1,692. Its Relative Strength Index jumped from 39.63 to 53.58. Although the MACD remains below the zero line, it has reversed course and is now on an upward trajectory, poised to cross above the zero line, suggesting the likelihood of a continued advance.

For Thursday, all sectors remained solidly in positive territory, with five sectors soaring by more than two percent. The financial sector led the group, with a 2.85 percent surge.

Consumer Discretionary (NYSEARCA:XLY): +2.33%

Technology: (NYSEARCA:XLK): +1.67%

Industrials (NYSEARCA:XLI): +2.58%

Materials: (NYSEARCA:XLB): +2.12%

Energy (NYSEARCA:XLE): +1.86%

Financials: (NYSEARCA:XLF): +2.85%

Utilities (NYSEARCA:XLU): +1.50%

Health Care: (NYSEARCA:XLV): +2.33%

Consumer Staples (NYSEARCA:XLP): +1.86%

Bottom line: The stock market experienced a huge rally on Thursday, as investors were excited by a proposal from House Republicans to push the debt ceiling deadline from October 17 to November 22, without re-opening the government.

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