Stocks rallied Tuesday as volatility and a rebound in China attracted bargain hunters following Friday’s triple-digit decline in the Dow Jones Industrial Average.
The Shanghai Composite jumped 2.9% as buyers anticipated another round of government support. But a trade report showed a 5.5% year-over-year decline in Chinese exports and a 13.8% fall in imports.
The Dow industrials were led higher by General Electric Company (GE), which rose 4%, and Wal-Mart Stores, Inc. (WMT), up 3.9%. GE received EU approval of a major energy acquisition.
Energy stocks rose 1.6% despite a 0.2% drop in crude oil futures to $45.94 a barrel. Gold was almost unchanged at $1,120.40 an ounce. The yield on the 10-year Treasury note rose to 2.19% from 2.13%.
At Tuesday’s close, the Dow Jones Industrial Average jumped 390 points to 16,493, the S&P 500 rose 48 points to 1,969, the Nasdaq vaulted 128 points to 4,812, and the Russell 2000 was up 26 points at 1,162.
The NYSE’s primary market traded over 900 million shares with total volume of 3.5 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 3.6-to-1, and on the Nasdaq, advancers led by 3.3-to-1.
SPDR S&P 500 ETF Trust (SPY), along with other major indices, is forming a right triangle with a gap from Friday’s high to Monday’s close. This is accompanied by a slowly improving MACD and lower volume on both buying and selling days. Gaps usually close, so traders can often use them to their advantage.
Conclusion
Right triangles, or coils, are consolidation features that usually occur following a significant advance or decline. They usually break in the direction of the overall trend, especially when high volume accompanies the up or down break.
The word “coil” refers to the fact that the formation is like a coiled spring that will eventually release its energy. But, as a general rule, the break is less dramatic the longer it takes prices to creep to the apex of the right triangle.
There is no way to predict which direction a triangle will break though, as mentioned, most break in the direction of the major trend. We only know that when they do break it is usually very hard and fast.
Falling volume is not supportive of a break against the near-term trend. So the current triangles are likely to break to the downside.
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.
