Stocks rose Friday following a speech Thursday by Federal Reserve Chair Janet Yellen who indicated that the U.S. economy was on course and a rate hike before the end of the year is likely. The statement was obviously designed to assuage fears of an interminable delay.
Yellen went on to say the Fed needs to prevent “inappropriate risk-taking that might undermine financial stability.” Once interest rate increases begin, she said, “It will likely be appropriate to raise the target range of the federal-funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective.”
After a week of losses, European bourses rallied Friday. Exchanges in France, Germany and the UK gained 2.5% to 3%.
U.S. markets had a restrained reaction to Europe’s rebound. The Dow Jones Industrial Average was up 0.7%, but the S&P 500 lost 0.5% and the Nasdaq declined 1%.
The Nasdaq was pulled down by biotech stocks, with the iShares NASDAQ Biotechnology Index (ETF) (IBB) falling 5%. Biotech stocks have been under selling pressure following comments by presidential candidate Hillary Clinton about curbing drug prices.
Bond prices fell and the yield on the 10-year Treasury note rose to 2.17% from 2.12% on Thursday.
Crude oil rose 1.8% to $45.70 a barrel, the result of a decline in U.S. drilling and an increase in demand expectations. Gold lost 0.7% at $1,146 an ounce.
At Friday’s close, the Dow Jones Industrial Average rose 113 points to 16,315, the S&P 500 fell a point to 1,931, the Nasdaq lost 48 points at 4,687, and the Russell 2000 was down 15 points at 1,123.
The NYSE Composite’s primary market traded 977 million shares with total volume of 3.7 billion shares. The Nasdaq crossed over 2 billion shares. On the Big Board, decliners slightly outpaced advancers, but on the Nasdaq, decliners led by more than 2-to-1.
For the week, the Dow fell 0.4%, the S&P 500 was off 1.4%, the Nasdaq declined 2.9% and the Russell 2000 lost 3.5%.
Although on first appearance the SPDR S&P 500 ETF Trust (SPY) looks like it held and reversed, Friday’s close lower confirmed that the near-term and intermediate-term downtrend is still intact.
The major resistance line at $204, which I consider to be the most important feature of this chart, held against a reversal from my proprietary indicator, the Collins-Bollinger Reversal (CBR). The rally even failed to close the downside gap at $203-$204. SPY then gapped down again, breaking the ascending wedge with another gap down. This all occurred with high downside volume.
Conclusion
Rallies in bear markets are common, swift and devastating to short sellers. We may see such a rally this week. Traders should sell into any rallies and long-term investors should use them to protect positions by writing calls or buying puts.
Cash is still king. Smart buyers will refrain from making new commitments in all but the most sold-off equities with excellent fundamentals.
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.
