Stocks opened on a sharp downslide Monday. But the low of the day was made in the first 20 minutes, and the remainder of the day was spent overcoming the initial decline.
By the close, all the major indices except the Russell 2000 (-0.2%) had overcome the early losses and closed in the black for the day. Technology stocks led the way back up and pushed the Nasdaq 0.3% higher.
It was chiefly concerns over foreign economic matters that led to the sour opening. HSBC China manufacturing PMI fell more than expected. And the European Commission lowered its 2014 inflation forecast to just 0.8%. Then there is the continuing crisis in Ukraine that captures the headlines and appears to keep a daily cap on world equity performance.
At the close, the Dow Jones Industrial Average was up 18 points to 16,531, the S&P 500 rose 4 points to 1,885, and the Nasdaq added 14 points at 4,138. The NYSE traded total volume of 2.7 billion shares, and the Nasdaq crossed 1.6 billion shares for the third slowest trading day of the year. On the Big Board, decliners slightly outpaced advancers, but on the Nasdaq, decliners were ahead by 1.3-to-1.
Last week, the Dow industrials broke to a new all-time closing high of 16,580.84, triggering a Dow Theory buy signal. But immediately following the long-awaited signal, the index turned down with enough gusto to create a key daily reversal and a sell signal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR). However, Monday’s higher close triggered another CBR — this time a buy — which cancels Friday’s negative signal.
It is very rare to have two opposite CBR signals triggered back to back. But this is because the Bollinger Bands of the Dow and the S&P 500 have squeezed trading into a narrow range. (See Monday’s S&P Bollinger chart.)
Monday’s open caused a pop in the CBOE Volatility Index (VIX). This is a positive for the bulls since single-session VIX spikes of 10% often mean that a downtrend has ended, according to Michael Ashbaugh.
Conclusion: The bullish case was strengthened Monday by the recovery of the technology sector and the VIX bounce. But volume and breadth were so mediocre that I would not conclude from this one day that the bulls are out of the woods.
However, the overall picture is bullish with low resistance in the form of possible sellers. The trend is up, and I repeat that both traders and investors should be buying the dips pending outside interference from foreign sources and a penetration of the S&P 500’s support line at 1,850.
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.
