Stocks rebounded Tuesday after a five-day losing streak. The S&P 500 traded in the black for the entire session before closing with a gain of 1.2%. The Dow Jones Industrial Average, which fell to its lowest level in six months Monday, rose 1.1% on Tuesday.
The bounce back was attributed to the intraday recovery of China’s markets. Prior to the recovery, the Shanghai Composite was down over 5% in early trading. By the close, the loss had been cut to 1.7%.
The reversal had a strong impact on U.S. markets as bargain hunters drove all 10 sectors of the S&P 500 to gains.
One former Federal Reserve voting member predicted that the central bank would “most certainly raise rates in September,” and that also contributed to the rally. In the past, such a pronouncement would have resulted in selling, but instead the certainty of a rate hike appears better than the uncertainty of kicking the can down the road again.
Ford Motor Company (F) topped the corporate earnings news by reporting a 44% jump in net income for Q2. Shares rose 2% in response.
E I Du Pont De Nemours And Co (DD) fell 1.5% after reporting disappointing quarterly earnings. Pfizer Inc. (PFE) rose 2.9% following an earnings beat and upbeat forecast by management for the remainder of this year.
Crude oil jumped 1.2% to $47.98 a barrel. Gold closed unchanged at $1,096.30 an ounce.
Consumer confidence fell to 90.9 in July, its lowest level since September, below the reading of 100 that economists had forecast. U.S. home prices continued to gain ground. The S&P/Case-Shiller Home Price Index increased 4.4% in the 12-month period ending in May.
At Tuesday’s close, the Dow Jones Industrial Average rose 190 points to 17,630, the S&P 500 gained 26 points at 2,093, the Nasdaq was up 49 points at 5,089, and the Russell 2000 gained 10 points at 1,225.
The NYSE’s primary market traded 930 million shares with total volume of 4.1 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 2.6-to-1, and on the Nasdaq, advancers led by 1.6-to-1.
This chart of the Nasdaq illustrates how day traders use small gaps to grab small gains.
Note that on Monday’s close the Nasdaq opened a downside gap in trading from about 5,084.06 to 5,057.32. A savvy trader will take a long position at support around 5,040 with the expectation that a small rally will reap a small reward.
At 10 a.m. the next day, the market jumped and closed the gap by almost half but failed to close it completely until Tuesday’s final rally that took the Nasdaq to a high of almost 5,100. Gaps in trading close more frequently than not, and if traded with frequency can add up to significant trading gains.
Click to Enlarge
Tuesday’s close on the Nasdaq may not have been all it was cracked up to be. Even though the last green volume bar, at first glance, appears to show heavy buying, it is green only because it closed above the prior bar. The high of the day was made 90 minutes before the close. Prices deteriorated in the final hour, and a last-minute (literally) rally failed. It was an uncertain close to what could have been an upside reversal day.
Conclusion
The downside gap that opened on Monday was closed, but not on the final bar of the day. And even though the final trade managed to retake the 50-day moving average, my guess is that Tuesday’s rally is just another dead cat bounce.
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.
