On Tuesday, U.S. investors ignored more trouble in the Chinese market and instead focused on higher crude prices and earnings that exceeded analysts’ lowered expectations.
All major indices rallied with the Dow Jones Industrial Average up 1.8%, the S&P 500 gaining 1.4%, the Nasdaq advancing 1.1% and the Russell 2000 up 2.1%.
In China, the Shanghai Composite plummeted 6.4% despite the injection of $96 billion into the money market by the People’s Bank of China.
Oil spiked 3.4% to $31.38 a barrel after Iraq’s oil minister said Saudi Arabia and Russia might be more flexible in dealing with the global supply glut that has decimated oil prices.
Bank stocks were big gainers on oil’s rebound. Bank of America Corp (BAC), Citigroup Inc (C) and JPMorgan Chase & Co. (JPM) each rose more than 2%.
Coach Inc (COH) soared 9.8% after reporting its first quarterly sales gain in over two years.
Gold hit a three-month high, up 1.4% at $1,121.70 an ounce. The U.S. dollar fell against commodity-linked currencies such as the Canadian dollar, with the buck down 1.5% against the loonie.
At Tuesday’s close, the Dow Jones Industrial Average rose 282 points to 16,167, the S&P 500 advanced 27 points to 1,904, the Nasdaq gained 49 points at 4,568, and the Russell 2000 was up 21 points at 1,018.
The NYSE Composite’s primary exchange traded 944 million shares with total volume of 4.3 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 4.8-to-1, and on the Nasdaq, advancers led by 2.4-to-1. Block trades on the NYSE increased to 5,765, up from 5,567 on Monday.
After the closing bell, Apple Inc. (AAPL) reported better-than-expected earnings but revenues and iPhone sales missed estimates. The stock fell in after-hours trading.
The broader market’s positive response to oil and the dollar was encouraging. By closing above the important resistance line at 1,885, the S&P 500 established at least a temporary triple-bottom.
However, in order to render stability to the bottom, buyers must increase their volume and push the index above the shallow resistance at 1,907, the top of a small pennant. MACD came close to flashing a buy signal on Tuesday, and a positive close today may just trigger it.
Conclusion
It was pointed out by a friend and colleague, who is a point and figure chartist, that the S&P 500’s bullish percentage reversed into X’s Tuesday (X = good, O = bad). He noted the reversal comes from very oversold levels and said this kind of action was last seen in August 2015, and before that in August and October of 2011. He also cited the fact that 41 S&P 500 stocks gave new buy signals, mostly from the energy and consumer cyclical sectors.
A reader asked about how we should evaluate my S&P 500 17-month moving average chart since the down, up, down signal seen now has never occurred before. That’s a good question, but since it has never occurred before, I can only make a guess.
I believe it is the result of some very unusual happenings. High volatility caused by a fluctuating U.S. dollar and the lowest crude oil prices in decades seems to have resulted in very strange technical responses.
That said, I watch the volume (upside/downside), the Volatility S&P 500 (VIX) and increases/decreases in blocks versus public sentiment as shown by the AAII numbers, as well as basic chart formations, for clues as to the near/intermediate and long-term direction of the market.
As I’ve noted many times, technical analysis is more art than science because of the enormous number of variables. However, it is my belief that a technician who consistently applies proven principles can outwit and out trade the Wall Street crowd most of the time, especially when using properly placed stop-loss orders.
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.
