Stocks opened higher Tuesday as rumors spread that there was a deal with Greece that offered a six-month debt extension to get their “house in order.” But by 10 a.m. EST, the rumors of an extension were, according to the German finance minister, “Wrong!”
The market took back the opening gains, but then a solid earnings report from The Coca-Cola Co (NYSE:KO) and a rally in Apple Inc. (NASDAQ:AAPL), up 1.9%, helped the S&P 500 to a new closing high for 2015. The index is still below its all-time high made on Dec. 29.
Despite Tuesday’s gains in the Dow and S&P 500, the utility sector has fallen 3.3% in just one week. Energy stocks dropped 0.2% during that time, influenced by a decline in crude. Oil prices fell 5.4% on Tuesday to $50.02 a barrel.
Gold lost 0.7% at $1,231.60 an ounce. Treasury prices declined, moving the yield of the benchmark 10-year note to 1.99% from 1.95% on Monday.
At Tuesday’s close, the Dow Jones Industrial Average was up 140 points at 17,869, the S&P 500 gained 22 points at 2,069, the Nasdaq gained 62 points at 4,788, and the Russell 2000 rose 7 points to 1,203.
The NYSE’s primary market traded 785 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.3-to-1, and on the Nasdaq, advancers were ahead by 1.6-to-1.
The iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSEARCA:TLT) tracks the results of an index of U.S Treasury bonds with remaining maturities greater than 20 years. When the index is rising, it indicates that investors are fearful of equities and are therefore buying U.S. Treasury bonds. This is commonly referred to as a “risk-off” strategy.
But since the Jan. 30 high, the chart indicates that investors are selling bonds and buying stocks — a “risk-on” strategy.
The chart of the Dow Jones Utility Average shows the same trend as TLT. Since a high on Jan. 28, investors have been dumping utilities in favor of a more aggressive approach.
Conclusion
The charts above indicate that January’s sell-off in equities created fear, and fear results in a risk-off strategy. However, when February began, money was taken from low-risk assets and placed into stocks — a risk-on strategy.
Stocks had a relatively good day Tuesday, but even though the S&P 500 broke to a new 2015 closing high, it is still more than 1% off its December high (see Feb. 9 Daily Market Outlook). The S&P 500 did, however, break above the barrier at 2,064.
Coupled with the indications of a risk-on approach, we must conclude that the bull is still alive, despite other indicators like breadth, volume and the quality of the advance that are still weak.
Thus, we remain cautiously bullish but ready to invest when volume, breadth and price indicate that it is time for us to move to a risk-on approach. Until then, trading is the best option in a highly volatile market versus long-term positioning.
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.
