U.S. stocks recovered some of last week’s losses on Monday, led by energy stocks. The energy sector jumped 3.3% in response to a 2.5% increase in oil prices, which rose to $41.74 a barrel on concerns that violence in the Middle East could lead to supply disruptions.
The recovery in oil followed last week’s sharp 8% drop and could just be a bounce from oversold levels coupled with worries over the impact of the ISIS attacks in Paris.
Defense stocks rose in the wake of France’s anticipated military response. Lockheed Martin Corporation (LMT), Boeing Co (BA) and United Technologies Corporation (UTX) all made strong gains, pushing the iShares Dow Jones US Aerospace & Def. ETF (ITA) up 2.4%.
The Japanese economy re-entered recession as Q3 GDP fell 0.8%. Global equities rallied on the news with the expectation that the Bank of Japan will start a new round of quantitative easing.
Despite the recovery in stocks, the mood was one of “risk off” with gold climbing 0.3% to $1,083.70 an ounce and the yield on the 10-year Treasury note falling to 2.27% from 2.28% on Friday.
The euro fell 0.8% against the U.S. dollar to $1.0686, its lowest level in seven months.
At Monday’s close, the Dow Jones Industrial Average rose 238 points to 17,483, the S&P 500 gained 30 points at 2,053, the Nasdaq jumped 57 points to 4,985, and the Russell 2000 was up 10 points at 1,156.
The NYSE Composite’s primary exchange traded 866 million shares with total volume of 3.7 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.3-to-1, and on the Nasdaq, advancers led by 1.5-to-1. Block trades fell to 5,527 from 5,749 on Friday.
On the chart of iShares Russell 2000 Index (ETF) (IWM), low recovery volume, a sell signal from MACD, poor momentum and a weak close just a fraction above the 50-day moving average marked Monday’s tepid recovery.
The SPDR S&P MidCap 400 ETF (MDY) ended on a weak note as well. Very low recovery volume, a flat MACD from a sell signal on Thursday and a failed attempt to attack the 200-day moving average are signs that Monday’s rally probably won’t amount to more than a mild false recovery.
Conclusion
Volume is the key to most recoveries, as high volume indicates institutional buyers are taking positions in oversold stocks. Monday’s volume of 866 million on the NYSE was low for a recovery, and breadth at only 3-to-1 with fewer blocks is normally an indication that a bounce will not last long. Also, Thursday’s fall registered almost a 9-to-1 down day on the NYSE.
The negative internals all point to a dead cat bounce. Chances are this cat won’t land on its feet, but rather on its head.
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.
