On Friday, a welcome bounce by small-cap and technology stocks, as well as biotech stocks, led the overall market to a modest gain. And the Dow Jones Industrial Average made a new record closing high, marking a Dow Theory confirmed buy signal.
Gap (GPS) jumped 3.3% after pre-releasing better-than-expected earnings and April same-store sales growth. iShares Nasdaq Biotechnology (IBB) closed at $226.24, up 1.4%.
Wholesale inventories for March increased 1.1%, up from a revised 0.9% in February and above estimates of 1%. Job openings for March decreased slightly, according to the Labor Department.
At Friday’s close, the Dow Jones Industrial Average rose 32 points to a new record at 16,583, the S&P 500 added 3 points at 1,878, and the Nasdaq gained 20 points at 4,072. The NYSE primary market traded 651 million shares with total volume of 3 billion shares. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 1.3-to-1, and on the Nasdaq, advancers were ahead by 1.8-to-1.
For the week, the Dow rose 0.4%, the S&P 500 fell 0.1%, and the Nasdaq lost 1.3%.
Dow Theorists got a treat on Friday when the Dow industrials finally broke to a new closing high. The Dow transports hit a high on April 30, but the industrials have lagged and some technicians considered this a “non-confirmation” and even called for a reversal down.
The prior closing high was made on Dec. 31 at 16,576. The new high came after a flurry of signals from our internal indicator, the Collins-Bollinger Reversal (CBR), and readers were alerted to unusual nature of those signals on May 8.
Several times last week, I noted the technology and biotech sectors had buyers appear for the first time in weeks. This “nibbling” accelerated on Friday, as the CBR flashed its second consecutive buy signal.
The iShares Nasdaq Biotechnology reversed and closed above its 200-day moving average. It is still trading within a very narrow range, bounded on the bottom by its 200-day moving average at $223 and the downward sloping resistance line at $230. MACD is positive, but a break above $230 is needed to reverse the overall pattern to an uptrend.
Conclusion: Although a divergence exists between the small-cap and big-cap stocks, buyers appear to be increasing their activity in the small and mid caps. This is most apparent in the biotech sector and Nasdaq (see previous Daily Market Outlook). And with the Dow Jones Industrial Average finally confirming a Dow Theory buy signal, the pressure is on the bears.
Although volume and breadth are somewhat less than we would expect in a major turn, both lagged for much of last year even as new highs were achieved. It is time to join the nibblers and take a small risk in the biotech and technology sectors where many stocks are 20% to 30% below recent highs. However, use stop-loss orders to protect against a possible sell-off.
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.