Stocks advanced Thursday as oil prices rose and the European Central Bank suggested the possibility of further stimulus at its meeting in March.
The relief rally was welcomed by some technical analysts as a first step in establishing a potential bottom. But others focused on falling demand from China and the possibility of lower oil prices.
Crude finished the day up 4.2% at $29.53 a barrel, rebounding from 12-year lows.
Gold futures, generally considered a hedge, fell 0.5% to $1,100.60 an ounce. Another “safe haven,” the 10-year Treasury bond, also fell as its yield rose to 2.02% from 2.01% on Wednesday.
At Thursday’s close, the Dow Jones Industrial Average rose 116 points to 15,883, the S&P 500 gained 10 points at 1,869, the Nasdaq rose less than a point to 4,472, and the Russell 2000 fell 2 points to 997.
The NYSE Composite’s major exchange traded over 1.1 billion shares with total volume of over 5 billion. The Nasdaq crossed 2.4 billion shares. On the Big Board, advancers outpaced decliners by 1.4-to-1, and on the Nasdaq, advancers led by 1.2-to-1. Block trades on the NYSE declined to 6,643 from Wednesday’s 7,809.
On Wednesday, the Dow Jones Industrial Average made an attempt to challenge the August low. Then, on Thursday, the index rallied for a triple-digit gain on above-average volume. But volume was still below that of the average selling day.
Note the enormous pickup in selling in the last minute of trading. This closely resembles Wednesday’s last-minute selling, and with the intraday bullish “V,” could be a sign of bottom making.
The Volatility S&P 500 (VIX) chart is quite different from the explosive, emotional sell-off in August. Note that although Thursday’s intraday high was near 30, the VIX closed down 3.3% at 26.69. This is a positive signal.
Conclusion
In response to talk of the stock market predicting a recession, Jeff Saut, Raymond James’ chief investment strategist, quoted famed economist Paul Samuelson: “Wall Street indexes predicted nine out of the last five recessions.”
After 15 sessions of selling, the market is grossly oversold and due for a bounce. Firms like Goldman Sachs have the major oil and gas stocks high on their buy lists, and Thursday’s recovery could be the beginning of a bottom.
I believe it’s time to nibble at high-quality, undervalued energy stocks, which could see shares double before the end of the year.
Some have had large dividend cuts — like Trade of the Day Kinder Morgan Inc (KMI) — but it is unlikely that industry giants like Exxon Mobil Corporation (XOM) will see future dividend cuts. However, following a cut is likely a good time to buy, but stay away from downtrodden stocks with dividend yields over 10%. They are dangerous since they could fall further if they can’t sustain their dividend.
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.
