Expect More High-Volatility Days in This Uncertain Market

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Stocks advanced again on Friday, and although the gains were relatively small, they capped a week in which the Dow industrials and S&P 500 recorded their biggest two-day percentage gain since 2011. For the S&P 500, it was also the largest weekly gain since October, and the index finished just 0.2% off its closing high.

The catalyst for the blocks of buying that began on Wednesday was the Federal Reserve’s assurance that it “can be patient” regarding an interest rate hike. And the European Central Bank (ECB) indicated that it was prepared to engage in a bond-buying plan in 2015.

Energy stocks had their first significant rally since topping midyear, with the Energy Select Sector SPDR ETF (XLE) ending the week up 8.9%. Oil futures rose 4.5% Friday to $56.52 a barrel. Gold rose 0.1% to $1,185.90 an ounce, and the Market Vectors Steel ETF (SLX) jumped 3%.

High volume and extreme volatility characterized Friday’s trading. This was largely due to the quadruple witching day in which four types of stock futures and options contracts expired.

Nike Inc (NKE) fell 2.3% on a future orders outlook that disappointed. Biopharmaceutical company Juno Therapeutics Inc (JUNO) popped 46% on its debut. Retail stocks fell with the SPDR S&P Retail ETF (XRT) off 0.7%. Visa Inc (V) and Apple Inc. (AAPL) both lost close to 1%, and Intel Corporation (INTC) was down 1.8%.

U.S. Treasuries rose throughout the day with the 10-year Treasury note falling 5 basis points to 2.17%.

At Friday’s close, the Dow Jones Industrial Average gained 27 points at 17,805, the S&P 500 rose 9 points to 2,071, the Nasdaq gained 17 points at 4,765, and the Russell 2000 rose 4 points to 1,196.

The NYSE’s primary market traded 2.3 billion shares with total volume of 5.8 billion. The Nasdaq crossed 2.8 billion shares. Advancers outpaced decliners on the Big Board by 1.8-to-1, and on Nasdaq, advancers led by 1.1-to-1.

For the week, the Dow gained 3%, the S&P 500 rose 3.4%, the Nasdaq was up 2.4%, and the Russell 2000 gained 3.8%.

Dow Chart
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Chart Key

The Dow industrials had a 400-point-plus gain on Thursday, its first since 2011. This was followed by a whipsaw that drove the Dow down through its 50-day moving average, up to an intraday high at 17,874 — just under a resistance line at 17,895 — and back below the 50-day.

After Friday’s minor advance, the Dow is just 186 points from its all-time high. MACD is very close to breaking into bull territory. Initial support is at its breakout point at 17,280.

Nasdaq Chart
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Like the Dow, the Nasdaq also whipsawed Friday. But unlike the Dow, it opened a gap at 4,652 to 4,697 on Thursday. Since this is not a breakaway gap, the chances are high that it will close.

Initial support is at 4,700, followed by the bottom of the gap at 4,652 and the breakout point at 4,610.

Conclusion

The long-term and intermediate trends are now definitively up, despite the probability of more high-volatility days. However, the near term is very uncertain.

Last week’s move was likely the result of abnormal conditions: the minor bounce in oil after a 50% decline, the Fed’s lukewarm statement of market support and quadruple witching at year’s end, as well as an institutional buying panic by those who missed the market all year. These add up to massive near-term uncertainty.

Long-term investors may want to dabble in some of the higher quality energy stocks. And day traders could probably do well working the near-term support and resistance lines that, because of high volatility, could provide quick profits. However, near term, I expect an adjustment to last week’s advance that would close the Nasdaq’s gap.

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/2014/12/daily-market-outlook-expect-high-volatility-days/.

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