On Wednesday, the Dow industrials posted a triple-digit gain and their eighth best advance of the year — even though Q1 GDP growth was revised downward. It seems that less-than-good economic news is being interpreted as good news since bad news may extend the support of the Fed.
Following a lower opening, stocks traded down until their lows at around 11 a.m., and then rallied for the remainder of the day. All of the S&P’s 10 sectors registered a gain. And bond prices rallied as the 10-year note rose 13/32 and its yield fell to 2.539%.
At the close, the Dow Jones Industrial Average was up 150 points to 14,910, the S&P 500 gained 15 points at 1,603, and the Nasdaq jumped 28 points to 3,376. The NYSE volume was 774 million shares and the Nasdaq traded 414 million. On the Big Board, advancers were ahead of decliners by almost 3-to-1, and on the Nasdaq advancers led by 1.2-to-1.
Even though the market rallied Wednesday with better-than-average volume and excellent breadth, the major hurdle to a further advance is the 50-day moving average at 1,619, and then the June high at 1,652. The recent pattern of lower highs and lower lows was considered a bullish flag until the index closed under the 50-day moving average, with gusto.
Conclusion: The long-term bull market is still intact. But by breaking through the support at the 50-day moving average and slicing through the index’s intermediate trendline, both the short-term and intermediate-term trends have turned down.
A 33.3% Fibonacci retracement of the November low to the May high equals 1,569, and that was achieved by Monday’s intraday low of 1,560, then supported as a near-term target by Monday’s higher close at 1,573.
Therefore, expect the current rally to bounce no higher than the 50-day moving average (1,619) before running out of gas. Another reversal down could result in a full 50% retracement with a target of 1,513, which would be very near the uptrending 200-day moving average, now at 1,509. Unless the June high at 1,652 is overcome, traders should sell into rallies.
Note: I want to thank Serge Berger, head trader and investment strategist for The Steady Trader, for sitting in for me so capably while I was off looking for a new home 1,200 miles away. The long jaunt will take place at the end of July, when I will again need to be absent for a few days until my Internet connections can be hooked up. You can sign up for Serge’s free weekly newsletter here.
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.