The headline Thursday was “Dow Ends in the Black,” but it sure struggled to get there. Stocks opened weak in response to bearish economic news from Japan, France and China, and U.S. jobless claims were higher than expected. The Dow fell 70 points in the first 25 minutes of trading and spent the remainder of the day clawing its way back to just over breakeven. It was positive statements from the Fed and a successful Spanish bond auction that brought the major indices back from the lower opening.
At Thursday’s close, the Dow Jones Industrial Average was up 19 points at 13,597, the S&P 500 fell a point to 1,460, and the Nasdaq fell 7 points to 3,176. The NYSE traded 678 million shares and the Nasdaq crossed 413 million. Decliners led advancers on both exchanges by about 1.5-to-1.
Today is a quadruple witching day — the day on which contracts for stock index futures, stock options, stock index options, and single stock futures all expire. The week of quadruple witching can be a wild ride and the day characterized by terrifying swings, but thus far the markets have had light volume and modest volatility.
It’s true that Thursday started with a 70-point drop, but the remainder of the day was spent in a steady climb back to breakeven. And the CBOE Volatility Index (VIX), also known as the fear index, was benign, even for a normal day.
The NYSE Composite Index, which reflects all of the stocks traded on the New York Stock Exchange, broke out last week on solid volume and breadth, gapped through 8,200, and rose to a level not seen since July 2011. Its high was made in May 2011 at 8,718, and that is its next target with support at 8,200, and then the breakout point at 8,100.
Conclusion: The September breakout has all the characteristics of “the real deal.” Volume, breadth and follow-through all point to higher prices — and why not? The Fed has pledged to feed the markets even “through a recovery,” according to Fed Chairman Ben Bernanke.
But that does not mean that the market will run straight up with no corrections. There will still be Europe-induced panic and economic figures that fall short. And we can’t ignore either the election or the impending “fiscal cliff.”
Prepare your buy list of stocks that seemingly got away from you since our internal indicators are still overbought and a minor 2% to 3% correction is likely. Smart investors will take advantage of corrections and buy at their price, not the market’s price.
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.