The big news of the day that, at the close, had the greatest impact on stocks was not the Supreme Court’s health care decision. The Court’s decision had the immediate impact of a sharp sell-off, but almost the entire decline was reversed when rumors of progress were reported in European debt talks. The initial sell-off of over 160 Dow points was almost overcome by a 140-point rally in the last 90 minutes of trading.
At Thursday’s close, the Dow Jones Industrial Average was off 25 points at 12,602, the S&P 500 lost 3 points at 1,329, and the Nasdaq fell 26 points to 2,850. The NYSE traded 904 million shares and the Nasdaq crossed 494 million. On the Big Board, advancers exceeded decliners by 1.3-to-1, and on the Nasdaq, decliners were ahead by 1.6-to-1.
A wild day of high volatility ended with a whimper and a slight loss. The intraday low of the day for the S&P 500 landed precisely on the upward slanting support line at 1,313 (who says that charts don’t work) and bounced from there. Now, hemmed in between the 50-day moving average at 1,341 and the support line at 1,313, stocks have very little room to maneuver. Something’s gotta give.
Despite the wild trading, there is some consistency throughout the market. The small-cap Russell 2000 index looks very much like the large-cap S&P 500. On Thursday, the Russell found support at the 764 line, which is within a point of its 200-day moving average and the upward slanting trendline at 763.
But the Russell’s move triggered a buy signal from the stochastic, and so we could see another pop up today against the 50-day moving average or even the resistance line at 785. However, a head-and-shoulders’ target has yet to be met. In early June, the index registered a low of 730, but the target is at 724.
Conclusion: The surprising stock market bounce was triggered by the rumor of a better tone to the talks in Europe and a run of institutional portfolio balancing prior to the end of the quarter. With just one day remaining to the month and a holiday ahead, the early morning blow-off provided an excellent opportunity for the “big boys” to load up on some quality stocks at bargain prices. And that, in turn, appears to have prompted a late round of computer buying.
Whatever the reason, nothing has changed. The S&P 500 is range-bound in the near term, but the intermediate trend is down. After the smoke clears from the July 4th fireworks, look for a continuation of the selling and the achievement of the target for the Russell 2000 at 724.
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.