Despite the economy’s worst Q1 since 2009, stocks advanced on Wednesday for the first time in three sessions, with nine of the ten S&P sectors showing gains.
Stocks staggered under the blow of a Q1 GDP reading that showed a 2.9% contraction versus an estimate for a 1% decline. And durable goods orders for May declined 1% compared with expectations of a flat report.
GDP numbers reflect what has happened and have little predictive value, so many investment managers ignore them. A more important number reported by The Wall Street Journal is that only 37% of assets are now in stocks, meaning that not only the public underinvested, but investment managers are too.
The Journal also reported that the U.S. is poised to export oil for the first time in 40 years, with Pioneer Natural Resources (PXD) and Enterprise Products Partners (EXP) obtaining permission to do so.
Monsanto (MON) jumped 5.1% after topping earnings estimates and authorizing a $10 billion share buyback plan. And Barnes & Noble (BKS) rose 5.3% after saying that it would split its retail and Nook digital businesses into two separate public companies.
At Wednesday’s close, the Dow Jones Industrial Average gained 49 points at 16,868, the S&P 500 rose 10 points to 1,960, and the Nasdaq jumped 29 points to 4,380. The NYSE traded a total of 3.1 billion shares, and the Nasdaq crossed 1.7 billion. Advancers were ahead of decliners by 2.2-to-1 on the Big Board and by 2.2-to-1 on the Nasdaq.
Wednesday’s recovery does not cancel Tuesday’s false breakout. Resistance is at 4,400, and that’s the number that must be exceeded on a close in order to resume the uptrend. Note that MACD is very close to a sell signal.
On the plus side, Tuesday’s reversal down was accompanied by down volume of just 3.5-to-1 on the NYSE and 2-to-1 on the Nasdaq — very light numbers for a genuine false breakout.
Conclusion: On Tuesday, the Nasdaq appeared to qualify for a false breakout as it triggered a “key reversal day.” But upon further investigation, we find that volume did not confirm a breakdown. However, volume has been very light for all of 2014, so it may not have relevance in this situation.
The trading picture is still unfocused. Thus, until the small and mid caps, as measured by the Nasdaq and Russell 2000, paint a clear picture, it is probably best to remain neutral.
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.