On Friday, stocks in Europe, Asia and the United States rallied on the possibility of a deal between Greece and its creditors and support of China’s central bank for its stock market, which jumped 5.8% on Thursday.
The Dow Jones Industrial Average rose 1.2% and the STOXX Europe 600 gained 2%. The European index was up 1.4% for the week even though the deal offered on Thursday by Greek’s leaders was similar to the one rejected by 61.3% of voters on the prior Sunday’s referendum.
It is hoped that banks in Greece will open today. But European officials cautioned that the deal must be approved by three institutions, and then money must be disbursed. French officials were optimistic, but Germans were more cautious, questioning the Greek government’s credibility to implement overhauls required of their financial system.
Bonds took a drubbing on Friday as investors, buoyed by the better news from Europe and Asia, headed for equities. The yield on the 10-year benchmark Treasury note jumped from 2.30% on Thursday to 2.42%, near its high of the year.
Federal Reserve Chair Janet Yellen said the central bank still planned to start raising interest rates before the end of this year. However, she did indicate her disappointment with economic growth saying that unanticipated events have the potential to delay or accelerate the Fed’s first rate hike in almost 10 years.
All 10 of the S&P 500’s sectors rallied with technology leading with a gain of 1.6%. The tech sector was led by Apple Inc. (AAPL), which was up 2.7%. The financial sector, which rose 1.2% on the day, was led by Goldman Sachs Group Inc (GS), also up 1.2%.
The euro rose to $1.1156, up 1.1%. Light, sweet crude for August delivery fell 0.1% to $52.74 a barrel. The contract dropped 7.4% for the week, its biggest one-week decline since March. Gold for August delivery fell 0.1% to $1,157.90 an ounce.
At Friday’s close, the Dow Jones Industrial Average rose 212 points to 17,760, the S&P 500 gained 25 points at 2,077, the Nasdaq jumped 75 points to 4,998, and the Russell 2000 was up 18 points at 1,252.
The NYSE’s primary exchange traded 739 million shares with total volume of 3 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 3.8-to-1, and on the Nasdaq, advancers led by 3.6-to-1.
For the week, the Dow rose 0.2%, the S&P 500 was unchanged, the Nasdaq fell 0.2%, and the Russell 2000 closed 0.3% higher.
Fear took a back seat to optimism Friday despite the uncertainties surrounding Greece’s financial rescue plan. Proceeds from bond sales were used to purchase stocks and the Volatility S&P 500 (VIX) fell 16%.
An increase in the VIX shows an increase in fear and a decline in confidence. But technically the index is not out of the woods until it falls under the closing low of 16.09 made on July 1.
The Dow Jones Industrial Average regained the 200-day moving average, a first step in establishing a more permanent low. But there is significant overhead at the 20-day moving average at 17,836 and the 50-day moving average at 17,970.
The most-watched S&P 500 index also recovered from a drop below its 200-day moving average at 2,056. It is slightly stronger than the Dow, but like it, there is substantial overhead resistance, first at the 20-day at 2,088 and then at the 50-day at 2,100.
A buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR), on Tuesday mitigates — to some extent — the overall bearish price action.
Conclusion
Although our studies are technical in nature, in truth, the near-term outlook for stocks is mostly the outcome of the eurozone’s problems and the Chinese market’s ability to recover from last week’s “crash.”
Despite a more positive spin to both of these difficulties, a twin negative breadth of over 15-to-1 in seven sessions will be difficult to overturn. However, our support and resistance lines, and the market’s reaction at those critical areas, should guide us to the future direction of market action.
Late on Sunday, Greece was told that it must enact key reforms this week to restore trust before eurozone leaders would consider re-opening talks on a financial rescue plan. This adds an increased element of uncertainty to the near-term future of stock prices.
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.
