Stocks posted a rebound on Wednesday to erase Tuesday’s losses, sparked by a batch of unconfirmed, mixed headlines out of Europe that Greece could be inching towards a new bailout agreement with creditors — something German officials have said isn’t reflective of the action situation.
Watch for more of this as the June 5 deadline for a $1.8 billion payment to the IMF approaches. One real sign that the situation is nearing a climax was a decision by the European Central Bank to hold its lending limit to Greek banks steady for the first time since February following reports of increased deposit outflows and rising fears over the specter of capital controls. The chatter is that ECB officials are getting nervous about their exposure to Greece.
In the end, the Dow Jones Industrial Average gained 0.7%, the S&P 500 gained 0.9%, the Nasdaq Composite gained 1.5%, and the Russell 2000 gained 1.3%.
Tech stocks led the way with a 1.8% gain thanks to a 21.8% rise in Broadcom Corporation (NASDAQ:BRCM) after the Wall Street Journal reported the company is in advanced-stage talks to be acquired by Avago Technologies Ltd (NASDAQ:AVGO).
Tiffany & Co. (NYSE:TIF) rose 10.5% on solid Q1 earnings and sales on better U.S. comp-store sales. Michael Kors Holdings Ltd (NYSE:KORS) was slammed 24.2% after missing on fiscal Q4 comp-store sales and missing earnings per share estimates by a penny. Nike Inc (NYSE:NKE) lost 0.6% on reports the company appears to be entangled in the FIFA corruption probe with allegations of bribery in the company’s deal with the Brazilian Federation.
Crude oil again moved lower, with West Texas Intermediate losing 0.7% to close at $57.64. The selling continued after the close after the API inventory report showed a build of 1.3 million barrels — following three weeks of drawdowns. Prices moved down to test intraday lows near $57.40.
This was good news for the new ProShares UltraShort Crude Oil (NYSEARCA:SCO) position recommended to Edge subscribers, which gained 1.7%, as well as the June $20 put options against the United States Oil Fund LP (ETF) (NYSEARCA:USO) recommended to Edge Pro subscribers, up 10.5% since Tuesday.
Technically, Tuesday’s breakdown remains in play. The folks at SentimenTrader note that similar breakdowns — the S&P 500 falling down out of a tight trading range near a 52-week high — have consistently led to weak returns over the month that followed looking back at 50 years of market history.
More narrowly, the S&P 500 traded at a 52-week high within the prior two trading days, then on Tuesday, we saw the most 52-week lows among components of the index in more than two months. Of the nine other times this has happened during the current bull market, the S&P 500 was higher only two times, and returned -0.6% on average.
The Dow Jones, as shown above, remains in stasis while breath continues to disappoint and options traders prepare for a disorderly selloff.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters.
