Stocks closed higher Monday, but their success was based on what some analysts predict was a bottom in crude oil. WTI oil reversed from an intraday low under $35 a barrel to close the day up 1.9% at $36.31.
But natural gas fell to a 14-year low as a result of the extremely mild start to winter across the country, down 4.8% to $1.894 a million BTUs.
Junk bonds fell again after the sharpest drop in four years on Friday. Many analysts believe a decline of this nature presages the end of the equity bull market. The largest junk bond ETF by assets, iShares iBoxx $ High Yid Corp Bond (ETF) (HYG), lost 0.9% as investors continued heading for the exits following Friday’s 2% decline.
Chevron Corporation (CVX) jumped 3.4% and Exxon Mobil Corporation (XOM) added 2.3%. The two energy giants accounted for over 50 points of the 103-point advance in the Dow Jones Industrial Average.
Apple Inc. (AAPL) fell 0.6% after Morgan Stanley lowered its iPhone sales forecast and price target.
E I Du Pont De Nemours And Co (DD) declined 3.6% and Dow Chemical Co (DOW) lost 3.9% after activist investor Daniel Loeb called for the removal of Dow’s CEO following the companies’ merger plans announced Friday.
The yield on the 10-year Treasury note rose 10 basis points to 2.23% ahead of this week’s FOMC meeting. Some investors believe the Federal Reserve will hesitate to raise rates because of the shaky junk bond market. However, I’ve concluded that in light of the many supportive statements from various Fed governors, they will have no choice but to raise rates and follow up with a very mild comment regarding the pace of future rate hikes.
At Monday’s close, the Dow Jones Industrial Average rose 103 points to 17,369, the S&P 500 gained 10 points at 2,022, the Nasdaq advanced 19 points to 4,952, and the Russell 2000 fell 8 points to 1,116.
The NYSE Composite’s primary exchange traded over 1 billion shares with total volume of 4.6 billion. The Nasdaq crossed 2.2 billion shares. On the Big Board, decliners outpaced advancers by 2.8-to-1, and on the Nasdaq, decliners led by 1.7-to-1. Block trades on the NYSE declined to 5,486 from Friday’s 6,027.
The S&P 500, along with the Dow and Nasdaq, executed a Collins-Bollinger Reversal (CBR), reversing from the day’s lows to close with a healthy gain.
Each of the three major indices moved back into the trading zone that has been in place since mid-October.
However, the mid and small caps didn’t follow their big cousins with a spectacular intraday turnaround. In fact, both the SPDR S&P MidCap 400 ETF (MDY) and iShares Russell 2000 Index (ETF) (IWM) closed lower, confirming that their next move is to challenge the recent lows.
Conclusion
Monday was a perfect example of the adage, “The market will do its best to confound the majority.”
But despite the spirited response to a daily reversal in energy stocks, only the indices loaded with those stocks reacted positively. To this technician, that doesn’t make it look like a bottom is in place. In fact, it looks like more of the same highly volatile market that we’ve made or lost money on since spring.
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.
