The major indices finally posted a strong rally on Thursday after days of beatings. The Dow Jones Industrial Average closed up 1.4%, the S&P 500 rose 1.7% and the Nasdaq jumped 2%.
The rebound, which was led by oversold oil producers and biotech stocks, was largely the result of a recovery in crude and dovish comments from St. Louis Fed President James Bullard.
The energy sector gained 4.3% with oil giants Chevron Corporation (CVX) and Exxon Mobil Corporation (XOM) rising 5.1% and 4.5%, respectively. Crude finished up 2.4% at $31.20 a barrel.
JPMorgan Chase & Co. (JPM) beat Q4 earnings estimates, which contributed to the market’s strong opening. But the financial sector was one of the poorer performers, up just 0.9%. Perhaps investors are concerned that earnings from the likes of Citigroup Inc (C), PNC Financial Services Group Inc (PNC) and Wells Fargo & Co (WFC) will not be as upbeat.
Expectations for earnings across all sectors are low. FactSet estimates Q4 profits for S&P 500 companies will come in 5.3% lower than a year ago, and this has not been overlooked by investors.
The yield on the 10-year Treasury note rose to 2.10% from 2.08% on Wednesday. Gold fell 1.3% to $1,073.90 an ounce.
Initial jobless claims increase to 284,000 in the week ended Jan. 9, beating the consensus estimate of 275,000.
At Thursday’s close, the Dow Jones Industrial Average was up 228 points to 16,379, the S&P 500 gained 32 points at 1,922, the Nasdaq rose 89 points to 4,615, and the Russell 2000 gained 15 points at 1,026.
The NYSE Composite’s primary market traded 1.3 billion shares with total volume of 5.2 billion. The Nasdaq crossed 2.5 billion shares. On the Big Board, advancers outpaced decliners by over 2-to-1, and on the Nasdaq, advancers led by 2.1-to-1. Block trades increased to 6,418, up from 6,159 on Wednesday.
Thursday’s 1.7% rally in the S&P 500 came not a moment too soon. A drop through 1,900 would have challenged the double-bottom at 1,885.
Instead the oversold condition I outlined in the previous Daily Market Outlook resulted in a rally that should focus our attention on the resistance line at about 1,990 and the Fibonacci target at 1,993, which I mentioned on Wednesday.
Conclusion
Volume was higher on Thursday’s rally than Wednesday’s decline. The rally may be another dead cat bounce, but higher block volume also accompanied it, and that is a sign of institutional buying.
Furthermore, the advance in Dow Jones Industrial Average took it out of reach of a new low and Dow Theory bear market signal, at least for the moment.
As mentioned, my rally target is the Fibonacci line at 1,993 or so, which stands as a major impediment to higher prices. But now we have a target that, if achieved, could provide a nice trading profit.
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.
