Stocks recovered from a sloppy opening Thursday, whipsawing traders and forcing many to cover short sales. Bargain hunters scooped up technology and small-cap stocks, which ended the day in positive territory after weeks of being pummeled.
After a lower opening, the market appeared to respond to comments by St. Louis Federal Reserve President James Bullard, who said the Fed should consider delaying the termination of its bond-buying plan. Bullard is known as a “hawk,” so his comments came as a surprise. It should be noted that he is currently not a voting member of the FOMC.
Crude oil futures rose 1.1% to $82.70, which had a positive impact on energy stocks. The Energy Select Sector SPDR ETF (XLE) gained 1.8%, making it the best performer of the S&P’s 10 sectors.
The technology sector fell slightly despite a rally in semiconductor stocks. The iShares PHLX SOX Semiconductor Sector (SOXX) was up 1.5%.
Weekly jobless claims fell to 264,000 versus an expected increase to 290,000. Industrial production increased 1% in September, which was higher than forecasted and the biggest gain in almost two years. Manufacturing rose 0.5% after falling 0.5% in August, a surprising turnaround. Finally, the Philly Fed Manufacturing Survey fell to 20.7 in October from 22.5, while experts had been expecting a decline to 19.8.
At Thursday’s close, the Dow Jones Industrial Average fell 25 points to 16,117, the S&P 500 gained less than a point to 1,863, and the Nasdaq rose 2 points to 4,217. The Russell 2000 led all other indices, gaining 14 points to 1,086.
The NYSE’s primary market traded over 1 billion shares for the second consecutive session with total volume of over 5 billion shares. The Nasdaq crossed 2.6 billion shares. On both major exchanges, advancers outpaced decliners by about 2.2-to-1.
The SPDR S&P MidCap 400 ETF (MDY) shows that the recent rally has some legs. Note the increase in positive volume, as well as the back-to-back reversals, a buy signal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR), on Wednesday, and a key reversal day on Thursday. MACD also appears to be hooking up, another good sign.
The chart of the small-cap Russell 2000 shows two consecutive advances of over 1%, the jump through the important resistance line at 1,082, and a clear thrust up in the MACD fast line — all very positive for the bulls.
Conclusion
Many of our readers like to see the “soldiers” lead, and Thursday they led a mighty charge. Both the small- and mid-cap indices triggered multiple buy signals. Breadth at over 2-to-1 on the Big Board may not be the most positive, but with volume at over 1 billion shares for two consecutive days, the breadth number will qualify as a strong positive.
Two positive days cannot completely overcome the extensive damage done to all sectors of the market. However, these charts show that institutional buying — even if it’s short covering — should continue the rally for several days.
The Russell 2000’s near-term target is its August breakdown point at 1,120, but first it must continue to draw volume from the big boys. As long as they buy, overcoming the fear of public selling, we could even see a rally to the 50-day moving average at 1,133.
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.
