Stocks continued to rally Tuesday, logging their best two-day gain since late August as buyers focused more on oversold sectors than on the price of oil. Investors sold safe havens like gold and bonds, favoring the higher P/E stocks of the beaten-down Nasdaq and Russell 2000.
The tech-heavy Nasdaq gained 2.3% for the day but is still down more than 11% this year. And The Wall Street Journal reported that eight of the biggest gainers in the S&P 500 were down at least 25% in the past year.
All 10 of the S&P 500’s sectors advanced with consumer discretionary in the lead, up 2.4%. It was followed closely by industrials, up 2%, financials and health care, both up 1.9%, and technology, up 1.8%.
The Dow Jones Transportation Average rose 2.3% and is up 4.4% for the month.
The yield on the 10-year Treasury note rose to 1.78% from 1.74% on Friday as bond prices fell. Gold dropped 2.6% to $1,207.50 an ounce.
European markets rallied on news of a possible production freeze in oil; however, by the time our markets opened, it appeared the deal was a non-starter as Iran pulled out. The Stoxx Europe 600 ended down 0.4%, and WTI crude finished 1.4% lower at $29.04 a barrel.
At Tuesday’s close, the Dow Jones Industrial Average rose 223 points to 16,196, the S&P 500 gained 31 points at 1,896, the Nasdaq rose 98 points to 4,436 and the Russell 2000 was up 24 points at 996.
The NYSE Composite’s primary exchange traded 1.2 billion shares with total volume of 4.5 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 4.2-to-1, and on the Nasdaq, advancers led by 3.4-to-1. Block trades on the NYSE declined to 6,316 from 6,583 on Friday.
The charts of the two strongest index ETFs — SPDR S&P MidCap 400 ETF (MDY) and iShares Russell 2000 Index (ETF) (IWM) — showed the process of a very weak rally. Note that the two-day rally that began on Friday is not supported by high-volume buying, and on each chart, we see significant overhead within striking distance.
Conclusion
Earlier this month, I noted a flag pattern on the chart of IWM, which I also said is a formation that usually breaks to the downside. That is exactly what happened, and now the overhead at $102 is the beginning of resistance while the ETF lacks supporting volume.
As for MDY, the two-day rally also lacks volume. It, too, is faced with potential sellers, and it closed Tuesday at the first line of mild resistance, which extends to the tops at $240. Major resistance lies in wait at $246.
Those holding stocks bought in the current rally must have a penchant for dead cats.
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.
