Last week ended with a modest rally in bonds and a pop in Microsoft (MSFT). Mr. Softie’s 7.3% rally was the result of the announcement of the CEO’s pending retirement.
All 10 of the S&P’s sectors advanced, taking back some of the losses experienced early in the week. The rebound followed the longest losing streak in over a year with Treasury bond yields at their highest level in over two years.
Homebuilders fell in reaction to a report that new home sales for July dropped to 394,000, down 13.4% from a revised June report of 455,000, which was down from a previously reported 497,000. Analysts were expecting 485,000 for July.
Stocks rallied since the thinking is that, as a result of the poor home sales, the Fed may delay “tapering” its bond buying plan beyond September. On Friday, one Fed regional president emphasized that tapering was “data dependent.”
At Friday’s close, the Dow Jones Industrial Average was up 47 points to 15,011, the S&P 500 rose 7 points to 1,664, and the Nasdaq gained 19 points at 3,658. The NYSE traded 572 million shares and the Nasdaq crossed 358 million. Advancers led decliners on the Big Board by 2.3-to-1, and on the Nasdaq, advancers were ahead by 1.1-to-1.
For the week, the Dow fell 0.5%, the S&P 500 rose 0.5%, and the Nasdaq gained 1.5%.
On Friday, the Dow regained the 15,000 level, and thus placed importance upon two inflection points — the April high at 14,865 and the August low of 14,880. These points are within the overall trading band of 14,845 and 15,418, as is the next immediate resistance, the 50-day moving average at 15,244. MACD is turning up slightly, which signals that a weak rally is in progress.
The stock market continues to be led by the more speculative stocks. The Nasdaq is comprised of many of them, and its jump on Friday ended between the open gap of 3,627 to 3,667. Immediate support is at the band of 3,575 to 3,630, and then the May high of 3,523. Like the Dow, the Nasdaq’s MACD signals that a weak rally is in progress.
Conclusion: The struggle between the bulls and bears has narrowed with the pressure upon the bulls to continue the weak rally begun on Thursday. Although the long-term trends are decidedly bullish, the near term is shaky, led by speculative stocks and indices — not the stuff that normally supports big breakouts.
The final week of August is usually accompanied by very light volume, but light volume often contributes to high volatility. Just don’t take this week too seriously, no matter the outcome. Continue to sell into strength.
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.