A rally on Friday capped what had been a dull week with a pop to new highs for the Dow industrials, S&P 500 and Russell 2000. The Nasdaq Composite gained for the eighth consecutive session, its longest run in a year, but is still 1.9% below its all-time high made in March 2000.
The trigger for the rally was an extension of Greece’s bailout until the end of June, along with an agreement that the country would honor all current debt obligations. It was feared the new far-left government was inclined to renege on the payment of prior loans from the EU, so this provided relief for the financial markets. In addition, Greek government officials are expected to present a list of reforms on Monday.
Of the 10 S&P sectors, nine gained with energy being the only one to post a loss, down 0.5%. The leading sector was health care (+1.1%), followed by industrials (+0.9%) and financials (+0.7%).
As a result of the deal with Greece, the euro rallied against the U.S. dollar, closing at $1.1381, up from a low of $1.1278 earlier in the day. U.S. Treasuries also fell with the benchmark 10-year note’s yield rising to 2.13%, up from 2.11% on Thursday.
Crude oil futures lost 1.6% at $50.34 barrel, and gold lost 0.2%, closing at $1,204.40 an ounce. Despite the decline in gold bullion, some individual mining stocks rose after Newmont Mining Corp (NYSE:NEM) reported a quarterly profit. NEM soared 4.6% on the day.
FactSet said that with almost 90% of the companies in the S&P 500 reporting, Q4 earnings are on track to increase 3.5% from a year ago, up from a previous estimate of 1.7%.
At Friday’s close, the Dow Jones Industrial Average gained 155 points at 18,140, the S&P 500 rose 13 points to 2,110, the Nasdaq was up 31 points to 4,956, and the Russell 2000 gained 4 points at 1,232.
The NYSE’s primary market traded 831 million shares with total volume of 3.3 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 2.2-to-1, and on the Nasdaq advancers, led by just 1.2-to1.
For the week, the Dow rose 0.7%, the S&P 500 gained 0.6%, the Nasdaq jumped 1.3%, and the Russell 2000 rose 0.7%.
The Dow industrials broke to a new all-time high on Friday, exceeding the prior high made in December at 18,103. Even though the MACD indicator is somewhat overbought, the industrials will most likely move slightly higher before a consolidation occurs.
Initial support on a pullback rests at the 50-day moving average at 17,684, which is just above the middle of the former trading range at 17,158 to 18,103.
Despite a break to new highs by other indices, the Dow Jones Transportation Average has not yet broken its Nov. 28 high at 9,310. Until a new high is established, a Dow non-confirmation exists.
Conclusion
There are few signals as closely watched as Dow Theory buy and sell signals. Dow Theory states that when the Dow Jones Industrial Average or Dow Jones Transportation Average makes a new high, that high must be confirmed by a new high in the other index. Until that occurs, the breakout is in doubt and is called a “non-confirmation.”
According to Technical Analysis of Stock Trends, by Edwards and Magee, the theory also states that “volume goes with the trend,” meaning that a breakout should be accompanied by higher volume than the days or weeks leading up to it. However, admittedly, when dealing with secondary trends, like the one we are now experiencing, hard-and-fast rules have less application.
The primary trend is up — no doubt about it — and I have never proposed anything else. However, the wide market swings, which are the result of the Greece crisis, have skewed the intermediate-term price action. These “whipsaws” were addressed by Raymond James’ Jeff Saut who predicted that the first few months of 2015 were going to be “rocky and volatile.”
With light volume on the current breaks and prices impacted by things other than earnings, I am not yet convinced stocks are confirming that a new permanent high will hold. Giving this new breakout another week to be impacted by earnings, rather than Europe’s circumstance, is prudent investing.
We may have missed eight weeks of advances, but many stocks are overpriced and a correction could offer a good opportunity to buy better values.
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.
