Could This Be a Buying Climax?

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New European stimulus measures were the spark that lit an explosive round of buying on both sides of the pond Thursday.

ECB President Mario Draghi said the central bank would re-examine further easing at its December meeting. Draghi also said the general council discussed lowering the deposit facility rate at the policy meeting.

Stocks in Europe closed higher with the Stoxx Europe 600 up 2%. However, the euro fell to $1.11, down 2% against the U.S. dollar, compared to $1.13 just prior to the ECB announcement.

The Dow Jones Industrial Average gained 1.9%, logging its highest close since August. Nine of the 10 sectors of the S&P 500 gained ground.

The market rallied despite warnings of a December rate hike by the Federal Reserve and a mixed bag of corporate earnings.

Caterpillar Inc. (CAT) jumped 2.9% even though earnings missed expectations and the company lowered guidance. 3M Co (MMM) missed revenue estimates and lowered its earnings outlook, yet shares spiked 4.1%. The company also announced a restructuring that will result in 1,500 layoffs.

But PulteGroup, Inc. (PHM) and Kinder Morgan Inc (KMI) posted losses of 6.6% and 5.3%, respectively, on earnings misses.

McDonald’s Corporation (MCD) and Texas Instruments Incorporated (TXN) surprised by reporting better-than-expected quarterly earnings. MCD advanced 8.1%, and TXN soared 11.9%.

Gold fell 0.1% to $1,166.60 an ounce because of the strong U.S. dollar. Crude oil rose 0.4% to $45.38 a barrel as demand for refined products outstripped crude oil inventories.

At Thursday’s close, the Dow Jones Industrial Average rose 321 points to 17,489, the S&P 500 gained 34 points at 2,053, the Nasdaq was up 80 points at 4,920, and the Russell 2000 added 10 points at 1,155.

The NYSE Composite’s primary exchange traded over 1 billion shares with total volume of 4.4 billion. The Nasdaq crossed 2.2 billion shares. On the Big Board, advancers outpaced decliners by 2.9-to-1, and on the Nasdaq, advancers led by 1.8-to-1.

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Chart Key

The Dow Jones Industrial Average has spiked almost 1,500 points from the 16,000 area in early October. Thursday’s blowout ended just below the 200-day moving average at 17,575 and at the lower level of resistance, which starts at about 17,560.

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The Dow Jones Transportation Average rose 120 points Thursday — a solid performance for this index. But it has not closed above its 200-day moving average or the September high at 8,320 needed to confirm a new intermediate uptrend and negate the Dow divergence noted several times in the past two weeks.

Conclusion

This week’s performance gives credence to my conclusion in Tuesday’s Daily Market Outlook: “The ‘W’ bottom is a convincing technical feature that cannot be ignored. Therefore, I am confident we have had a ‘correction’ unless some unforeseen negative event occurs.”

But neither should we ignore the poor earnings accompanying the rally or Thursday’s “spike” with high volume on the NYSE. These features often accompany a buying climax, especially when they come on flimsy earnings and revenue reports.

I’m surprised at the huge pop in U.S. stocks just because the ECB is reexamining further easing in December. But, admittedly, I have also missed the 8% jump from the Aug. 24 lows for the same reason — it makes no technical or fundamental sense.

Perhaps the Wall Street adage “Don’t fight the Fed” has taken on a nuance of “irrational exuberance.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2015/10/daily-market-outlook-could-this-be-a-buying-climax/.

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