On Friday, spurred on by a modest increase in jobs and an increase in the unemployment rate, the Dow industrials registered their second biggest gain of the year. From the report, investors apparently concluded that the economy is in a slow-growth mode and that the Fed will continue its monthly bond purchases.
Transportation stocks were strong, with the Dow Jones Transportation Average up 2.4%, and financials and industrials rose by more than 1.7%, as cyclical stocks led. But gold and silver fell, and copper lost 1.5%.
At Friday’s close, the Dow Jones Industrial Average gained 208 points at 15,248, the S&P 500 jumped 21 points to 1,643, and the Nasdaq rose 45 points to 3,469. The NYSE traded 728 million shares and the Nasdaq crossed 428 million. Advancers were ahead of decliners on both major exchanges by about 2-to-1.
For the week, the Dow rose 0.9%, the S&P 500 gained 0.8%, and the Nasdaq rose 0.4%.
After reaching the second highest level of the year, the CBOE Volatility Index (VIX) reversed and gapped down — a bullish development.
Thursday’s intraday low of 1,598 on the S&P 500 successfully tested the 50-day moving average and the intermediate trendline. The index reversed following a 5.3% pullback from the May high at 1,687. But it failed to close above its 20-day moving average at 1,646. A high-volume close under 1,598 would likely turn prices south.
The Nasdaq’s gap at 3,305 to 3,370 and the 50-day moving average at 3,354 were tested on Thursday and not only held, but prices reversed and the index issued a buy signal from our internal indicator, the Collins-Bollinger Reversal (CBR), at 3,378.
MACD is oversold — note how the red line has flattened while the blue histogram is up by one bar. The index closed the week above its 20-day moving average at 3,463. But one negative remains: The Nasdaq closed on the resistance line that forms the right side of the pyramid formation but failed to penetrate it.
On Thursday, the Dow pierced its intermediate trendline and 50-day moving average. But by closing above these support lines and resting at its high of the day, it created a reversal.
This is a classic bear trap since earlier in the day sellers seeing the index’s apparent negative trend were drawn into selling, but the trap was sprung when the index reversed. The bears really took it on the chin on Friday when the index closed above both the short-term resistance line and its 20-day moving average.
Conclusion: Most of the technical aspects of Thursday and Friday were very positive. The near-term trend was reestablished in the Dow industrials and came very close to complete reversals (up) on the Nasdaq and the S&P 500.
The bear ended the week with one foot in the trap. This week should tell us whether he has been fully subdued. But if the week’s lows in each index are violated, the bear will run wild, so wait for a confirming close above the resistance areas discussed above before riding the bull.
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.