Although the Dow fell for its fourth consecutive session Monday, most other indices opened lower and then rallied. And this was despite a decline in factory orders and a disappointing non-manufacturing PMI from China before the opening.
Friday’s disappointing jobs report almost guaranteed a lower opening on Monday, but at the close, the Dow Jones Industrial Average had lost just 17 points, closing at 12,101. The S&P 500 rose fractionally to 1,276, and the Nasdaq gained 13 points to close at 2,760. The NYSE traded 818 million shares and the Nasdaq crossed 479 million. On the Big Board, decliners outpaced advancers by 1.4-to-1, but the Nasdaq was break-even.
It seems everyone was bearish on Monday. There was talk of another recession and a depression in Europe. And even one of my favorite technicians, Michael Ashbaugh, came back from vacation with the opening statement, “So collectively, an already-bearish backdrop has turned technically uglier.”
But that was before the close when the indices rallied and ended with minor reversals. Even the broad-based S&P 500 reversed with a minor signal from our proprietary indicator, the Collins-Bollinger Reversal (CBR). That pattern was repeated on the Nasdaq and S&P 100, which is a large-cap index.
The reversal on the Nasdaq occurred from a low of 2,727 and closed above both the 200-day moving average at 2,759 and the resistance line at 2,737. And so, despite all of the negative chatter, the market did hold its own.
Why? I believe it is mainly because of the strong possibility of QE3. One former Fed governor even said that “it has never been completely taken off of the table.”
And then there is the strong possibility of new action from the Europeans — perhaps even a common bond issue from the EU.
Conclusion: The S&P 500 has fallen almost 10% from its April high, while the Nasdaq reached that number last week, and the Dow has fallen 8.9% from its May close.
Jeffrey Saut of Raymond James said esterday, “Indeed, the Dow’s decline is now 22 sessions long. Such ‘selling stampedes’ typically last 17–25 sessions before they exhaust themselves; it just seems to be the rhythm of the thing. This has been my observation over the years in that it takes this long to get participants bearish enough to finally panic and throw in the towel by selling their stocks. While it is true some stampedes have lasted more than 25 sessions, it is rare to have one run more than 30 sessions. Today is session 23 on the downside.”
The market is overdue for a rally, and so I caution short sellers to nail down their profits and traders to sell into a rally that could bounce for 2% to 5%. If I am wrong, we will know it very soon with a closing smash through Monday’s lows. But if correct, we could have another excellent opportunity to sell at higher prices.
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.