On Wednesday, trading on “the street of dreams” seemed perfectly normal as stocks continued their march forward with the major indices holding firm and comfortably above their respective 50-day moving averages. That is, until the European Central Bank increased pressure on Greece to “come to terms with its creditors.”
And with that ultimatum, the Dow industrials gave up a 116-point gain and ended the day up only slightly.
Energy stocks fell 1.7% along with crude prices. Oil futures closed below the psychologically important $50 a barrel level, down 8.7% to $48.45.
Merck & Co., Inc. (NYSE:MRK) dropped 3.2% after reporting that Q4 sales fell as a result of a strong U.S. dollar.
General Motors Company (NYSE:GM) announced quarterly profits were up 91%, which beat all expectations and accounted for the early strength in the broad market. The company also said it will raise its dividend by 20%, and shares advanced 5.4% on the day.
Walt Disney Co (NYSE:DIS) jumped 7.6% on much-better-than-expected earnings and revenues.
ADP reported that private payrolls increased by 213,000 in January, but that was below expectations for an increase of 240,000.
Gold futures rose 0.6% to $1,267.60 an ounce. The yield on the 10-year Treasury note rose slightly.
At Wednesday’s close, the Dow Jones Industrial Average gained 7 points at 17,673, the S&P 500 fell 9 points to 2,042, the Nasdaq fell 11 points to 4,717, and the Russell 2000 lost 6 points at 1,191.
The NYSE’s primary market traded 900 million shares with total volume of 4 billion shares. The Nasdaq crossed 2.2 billion shares. On both major exchanges, decliners outpaced advancers by about 1.7-to-1.
The first chart highlights the extreme volatility of the session. The S&P 500 fell from a high of 2,054.74, closing at 2,041.51, about 3 points below its 50-day moving average.
Even the Dow Jones Transportation Average was impacted by Wednesday’s high volatility. An attack on its 50-day moving average at 8,961 was turned back despite twin buys signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR).
But strong support at 8,600 should hold sellers at bay while buyers are equally frustrated by the massive overhead and the inability of this economically sensitive index to punch through to new highs.
The SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) fell from a new closing high made on Tuesday. However, this index is positive, and with twin CBR buy signals and a bullish MACD, we should expect follow-through and another new high in the next several days.
Conclusion
The market’s mixed signals and extreme volatility are staggering. The impact of Greece’s economy is so small, about 3% of European GDP, that even a default or withdrawal from the euro zone should not have evoked such a high degree of volatility in U.S. stocks.
The overreaction is most likely due to investors’ state of high anxiety. It seems that unless everything is perfect, buyers are not willing to make a firm commitment to equities.
Even though the technical picture is becoming more bullish, the high level of instability is disconcerting. Who can blame anyone for a lack of courage in light of Wednesday’s massive closing swing?
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.
