Stocks pirouetted off of technical support on Monday after a harrowing early session slide looked set to continue the carnage from Friday afternoon.
The initial decline was driven by a larger-than-expected slowdown in the U.S. ISM Manufacturing Activity report, which fell from 55.5 in December to 53.5 in January — also missing the 54.7 mark that experts had predicted.
That’s the slowest growth in a year, reinforcing fears that troubles in Asia and Europe are hitting home. Data on personal spending in December was also weak.
But stocks surged higher into the close after the Dow Jones Industrial Average bounced off of its 200-day moving average, a level that hasn’t been tested since October. That gave the bulls the cover they needed to make a move. So they did.
In the end, the Dow gained 1.1%, the S&P 500 gained 1.3% as it crossed back over the 2,000 level, and the Nasdaq Composite and the Russell 2000 each gained 0.9%.
Also helping was some soothing words from Greece’s new government, which suggested it would be open to debt restructuring rather than demanding debt forgiveness. The new anti-bailout/anti-austerity Syriza party in Athens has watched as its saber-rattling rhetoric roiled its stock and bond markets over the past week. This softening stance suggests that Greece and its European creditors could hammer out a deal.
Crude oil posted its second consecutive rise, adding 3.4% to close to $50, to provide another point of positivity thanks to indications that the energy sector is finally starting to cut back on production.
That helped power energy stocks higher for a sector gain of 3%. Exxon Mobil Corporation (NYSE:XOM) reported quarterly results that were down double digits from a year ago, but earnings per share beat the consensus estimate. Production declined nearly 4% from last year. A lack of downside guidance bolstered sentiment despite the firm cutting its share buybacks from $3 billion in the fourth quarter of 2014 to $1 billion this quarter. Shares gained 2.5%.
Tech stocks were a drag as Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB) lost 1% and 1.2% respectively.
Technically, the situation remains vulnerable as market breadth continues to deteriorate, as shown above. That’s a sign that fewer stocks are holding the market back from collapsing below its three-month trading range.
In response, I’ve recommended a new put option position against weakening stocks, such as Best Buy Co Inc (NYSE:BBY) and Facebook, to my Edge Pro subscribers who recently captured a gain of nearly 160% on Walt Disney Co (NYSE:DIS) Feb $94 puts over a three-day holding period.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
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