Nasdaq Stages Turnaround; Here’s What Needs to Happen Next

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Tuesday’s broad-based advance was led by the S&P 500 (+2%) and Nasdaq (+2.4%). It marked the fourth consecutive higher close for the S&P 500 and its biggest one-day gain this year.

The Dow lagged for the second day in a row, due to weakness in IBM (IBM), Coca-Cola (KO) and McDonald’s (MCD).

Energy was the biggest gainer of the S&P’s 10 sectors, up 3%. Crude oil futures rose 0.1% to $82.81 a barrel.

Tech and biotech were strong. The iShares Nasdaq Biotechnology (IBB) jumped 3.2%. Apple (AAPL) rose 2.7% following better-than-expected earnings and strong guidance. The iShares PHLX SOX Semiconductor Sector (SOXX) was up 3.7%.

Harley-Davidson (HOG) gained 7.3% following an earnings beat. McDonald’s fell 0.6% after reporting global comparable-store sales fell more than expected.

A report from Reuters suggesting the European Central Bank was looking to begin buying corporate bonds as soon as December moved the market to open higher. The Wall Street Journal and Financial Times denied the story, but that did not seem to have an impact on the rush to buy.

The National Association of Realtors reported sales of previously owned homes rose 2.4% in September, beating the 1% predicted by economists surveyed by The Wall Street Journal. China’s Q3 GDP growth of 7.3% exceeded expectations of 7.2%, but was the slowest in five years.

At Tuesday’s close, the Dow Jones Industrial Average rose 215 points to 16,615, the S&P 500 gained 37 points at 1,941, the Nasdaq was up 103 points to 4,419, and the Russell 2000 rose 18 points to 1,113.

The NYSE’s primary market traded 814 million shares with total volume of 3.9 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 4.5-to-1, and on the Nasdaq, advancers topped decliners by 2.8-to-1.

Nasdaq Chart
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Chart Key

To my surprise, the Nasdaq blasted up from a deep down thrust Tuesday, opening a gap from 4,317 to 4,356. In the process of this astounding reversal, the index broke from its 200-day moving average, ending the day smack in the middle of its former trading range of 4,368 to 4,485.

Conclusion

The Nasdaq’s reversal on high volume and excellent breadth, along with a new MACD buy signal, has to be one of the market’s most stunning turnarounds. Of course, in order to complete the reversal, it must hold above its 200-day moving average despite an almost certain test of the gap that it opened from 4,317 to 4,356.

Looking back one week to Oct.15, our rearview mirror can see the technical basis for the turn. Even though the index failed to close higher, it missed a gain by just 12 points in a volatile trading day in which more than 3 billion shares traded with more than 6,000 block trades crossing the tape.

So, is the bottom in?

One day never turns a market, but Tuesday may have come close. In order to solidify the gains, the Nasdaq and other major indices must test the bottom. For the Nasdaq, it would be nice to see the index partially or even fully close the open gap formed Tuesday and then exceed the day’s high.

Traders should buy any dips but keep cash on hand in this volatile market.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/nasdaq-stages-turnaround-heres-needs-happen-next/.

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