Dow Avoids Major Bear Market Signal

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Stocks rallied Friday along with the price of crude oil to close with the first weekly gain of 2016. While oil appeared to be the main catalyst for the advance, rising above $32 a barrel, bargain hunters also had a positive impact as they stepped up and grabbed some low-hanging fruit.

The Dow Jones Industrial Average rose 1.3% on Friday, the S&P 500 gained 2%, the Nasdaq popped 2.7% and the Russell 2000 added 2.3%.

Even after last week’s late rally, though, the major indices are all down for the year with the Dow off 7.6%, the S&P 500 off 6.7%, the Nasdaq off 8.3% and the Russell 2000 off 10.1% for the year.

With the exception of utilities, all S&P sectors are in the red year to date, with losses ranging from 2.7% (consumer staples) to 11.3% (materials). The defensive utilities sector is up 1.2% for the year.

Three of the beaten-down so-called FANG stocks rose on Friday. Facebook Inc (FB) jumped 4%, Amazon.com, Inc. (AMZN) was up 3.7% and Alphabet Inc (GOOGL, GOOG) gained 2.6%, but Netflix, Inc. (NFLX) fell 1.6%.

The yield on the benchmark 10-year Treasury note rose to 2.07% from 2.02% on Thursday as investors rushed to higher-risk positions. Gold fell 0.2% to $1,096.30 an ounce as the U.S. dollar rose.

At Friday’s close, the Dow Jones Industrial Average gained 211 points at 16,094, the S&P 500 rose 38 points to 1,907, the Nasdaq jumped 119 points to 4,591 and the Russell 2000 was up 23 points at 1,021.

The NYSE Composite’s major exchange traded 1.2 billion shares with total volume of 4.9 billion. The Nasdaq crossed 2.1 billion shares. On the Big Board, advancers outpaced decliners by 8-to-1, and on the Nasdaq, advancers led by 4.2-to-1. Block trades on the NYSE increased to 6,730 from 6,643 on Thursday.

For the week, the Dow was up 0.7%, the S&P 500 gained 1.4%, the Nasdaq added 2.3% and the Russell 2000 advanced 1.3%.

Dow Jones Industrial Average Chart
Click to Enlarge

Chart Key

The Dow Jones Industrial Average had a minor selling climax last week that rescued the index from a major Dow Theory bear market signal. Had the closing low been below the August closing low of 15,666, it would have been triggered. Instead we saw a reversal with resistance at about 16,500 to 16,680 — enough for a solid trade.

IWM Chart

Traders who like to see small caps lead had reason to cheer Friday. The iShares Russell 2000 Index (ETF) (IWM) accomplished a reversal on Wednesday when my proprietary indicator, the Collins-Bollinger Reversal (CBR), flashed a buy signal. A full Fibonacci 50% rebound would take IWM to about $106 — enough for a profitable trade.

Conclusion

The most important technical feature of the week was Wednesday’s reversal from just above the Dow’s August low. We will probably see a test of this reversal, but for now I suggest trading on the long side while still dumping non-performing stocks and those with high P/Es.

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/2016/01/daily-market-outlook-dow-avoids-major-bear-market-signal/.

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