On Friday, the market again focused on the news as encouraging headlines brought in buyers at the opening. But the remainder of the day was spent dissecting the latest crisis –Libya and its impact on oil supplies, with a bit of nuclear news from Japan thrown in.
Dow: +84 points at 11,859 (-1.5% for the week)
S&P 500: +5 points at 1,279 (-1.9% for the week)
Nasdaq: +8 points at 2,644 (-2.6% for the week)
Volume and Breadth
NYSE: 1.9 billion shares traded; advancers ahead 2.6-to-1
Nasdaq: 987 million shares traded; advancers ahead 2.1-to-1
Futures & Related ETFs
April Crude Oil: -35 cents at $101.07 per barrel; Energy Select Sector SPDR (NYSE: XLE) -61 cents at $75.39
April Gold: +$11.90 at $1,416.10 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) +2.26 points at 204.30
What the Markets Are Saying
As noted, stocks opened strong on Friday, and for a time it looked like we might have a more typical “triple witching” expiration day with high volatility coupled with high volume. It turned out that both volume and volatility were high, but only because of the uncertainties with the nuclear reactors in Japan and a coalition attack on Libya: “Power has returned to two of the facilities,” stocks go up. “There is no power to any facility and a meltdown is possible,” stocks go down. “Plutonium reactor risk is high for dangerous fallout,” stocks go down. “The plutonium reactor is not in danger of a meltdown,” stocks go up. “A coalition, led by France appears to have reached an agreement for a ‘no fly’ zone in Libya,” stocks go down. “Gadhafi agrees to a ceasefire,” stocks go up. “Gadhafi ignores ceasefire,” stocks go down. And so on.
Despite the clamor from the media, stocks advanced on a broad front on Friday following Thursday’s rebound. Volume was heavy on both the NYSE and Nasdaq, but that could be discounted by the normally high volume associated with options expirations. Therefore, Thursday is the key day to examine, and the conclusions are not encouraging.
The volume on that reversal day only amounted to 1 billion shares on the NYSE. On a significant turnaround, following days of losses, volume should go through the roof. So even though Friday’s net advance looks good on the surface, much of the trading was due to short covering and a renewed focus on headline news.
The only internal indicator that issued a buy signal was the slow stochastic. And while Moving Average Convergence/Divergence (MACD) is still very oversold, its “fast line” hardly budged indicating that we might continue to get a bounce, but it will likely be limited by the huge overhead supply of stocks for sale.
The charts continue to tell the real story. On Thursday, the indices bounced from their breakout zones of December with a problematic follow-through on Friday. Nasdaq again lagged the other indices as semiconductor shortages remain a concern.
A short-term rally could take stocks back up to the areas where the 20-day and 50-day moving averages cross. That crossover is at about 1,303 to 1,306 for the S&P 500, just 23 or so S&P points up, so traders who take the long side had better be nimble since a reversal down could be brutal.
Unless something quickly changes, the markets are in a near- and intermediate-term downtrend. A strong close above 1,300 would be encouraging, but the real number on which to focus is 1,250, which must hold in order for the bulls to have a chance of turning the market around before late spring.
For a leveraged ETF to play some good news, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at firstname.lastname@example.org.