Last week closed with a surge of buying of tech stocks. An unexpected rate cut of 25 basis points from the People’s Bank of China caused a gap-up opening on Friday that was partially closed by the S&P 500 and the Dow Jones Industrial Average by noon. The surge drove the S&P 500 positive for the year for the first time since August.
On Thursday, after the close, Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Microsoft Corporation (NASDAQ:MSFT) reported better-than-expected earnings, and that too contributed to Friday’s rally. The two helped the technology sector score a 3.1% gain. And Amazon.com, Inc. (NASDAQ:AMZN) also pushed the discretionary sector higher by jumping on the opening, following an unexpected good earnings report on Thursday.
Healthcare stocks shone, driven by a rebound in biotechnology stocks, which have been the subject of sharp sell-offs in October. The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) jumped 3.3%.
However, with just 59% of New York Stock Exchange-listed stocks posting gains on Friday and the CBOE Volatility Index (VIX) slightly lower, investors may have already “reached beyond their grasp.” Just four new highs were recorded with seven new lows.
Crude oil fell 1.8% to $44.59 per barrel, and the energy sector fell 0.2%. The dollar rose vs. a basket of currencies and closed at 1.1018 vs. the euro.
At the close the Dow Jones Industrial Average jumped 158 points, closing at 17,647, the S&P 500 gained 23 at 2,075, the Nasdaq closed at 5,032, up 112 points, and the Russell 2000 gained 12 points to close at 1,166. The NYSE’s primary exchange traded over 1 billion shares with total volume of over 4 billion shares. The Nasdaq crossed over 2 billion shares. On the Big Board, advancers outpaced decliners by 1.4-to-1, and on the Nasdaq, advancers led by 1.9-to-1.
For the week: The DJIA rose 2.5%, the Nasdaq gained 3.0%, the S&P 500 rose 2.1% and the Russell 2000 gained 2.1%.
On Friday, the S&P 500 popped above both the lower line of a resistance zone at 2,050 to 2,080 and its 200-day moving average at 2,060. And it accomplished it with higher-than-average volume, a positive. However, MACD is overbought.
The transports still lag the overall advance. The index is, however, attacking the September high at 8,320 but then must cope with the 200-day moving average at 8,477.
The financial sector, as measured by the Financials SPDR (NYSEARCA:XLF), topped on Friday at $24.15 with below-average volume and a MACD that is very overbought. This sector is clearly struggling to maintain its upward momentum.
Conclusion
Despite the spectacular performance of the broad market in October, there are at least two problems that could stop the advance in its tracks: the sluggish performance of the Dow transports and a struggling financial sector.
The troubling thing is that each represents a key economic sector that would normally lead a general move higher. And yet both have consistently lagged. The Dow Jones Transportation Average is still in a state of “non-confirmation” with the industrials.
Therefore, until these sectors prove that they are able to lead rather than follow, I’m skeptical of a continuation of what so far has been one of the best Octobers in recent memory.
Let’s hope that there is no Halloween goblin to spook the advance.
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.
