The first trading session of the month started lower due to a sharp sell-off in crude oil and new signs of economic stress in China. But after the initial sell-off, which hammered the Dow Jones Industrial Average for 167 points in the morning, stocks rallied for the remainder of the day.
The Dow and S&P 500 regained much of their early losses but still ended the day off 0.1%. The Nasdaq finished up 0.1%.
Friday’s rally was the biggest one-day advance since fall, so a lower opening was to be expected. What was not anticipated, however, was the big bounce after the initial profit-taking.
Utility and telecommunications stocks, two groups that pay above-average dividends, led the recovery.
The Institute for Supply Management said U.S. factory output contracted for the fourth straight month in January. And consumer spending, which accounts for more than two-thirds of U.S. GDP, was flat in December, according to the Commerce Department.
Crude oil lost 5.9% at $31.62 a barrel. The price of the benchmark 10-year Treasury note declined, with its yield increasing to 1.97% from 1.94% on Friday. Gold was up 1% to $1,127.90 an ounce, and the euro increased 0.5% against the U.S. dollar to $1.0888.
At Monday’s close, the Dow Jones Industrial Average was down 17 points at 16,449, the S&P 500 fell a point to 1,939, the Nasdaq rose 6 points to 4,620, and the Russell 2000 was off 3 points at 1,032.
The NYSE Composite’s primary exchange traded 1 billion shares with total volume of 4.3 billion. The Nasdaq crossed 2 billion shares. On the Big Board and Nasdaq, advancers and decliners were breakeven. Block trades on the NYSE declined to 5,579 from 6,871 on Friday.
A deep “V” reversal seen on the chart of SPDR S&P MidCap 400 ETF (MDY) appears to have enough downside volume to qualify for a selling climax, but it lacks upside volume on the subsequent turn higher. Monday’s close at $240 forms a double-top, and just above that top is the formidable resistance line at $245.
Conclusion
If mid-cap stocks are to regain the lead, they must attract more volume. To penetrate the band of resistance between $245 and $264 (the 200-day moving average), buyers will have to supplement breadth — which was an encouraging 11-to-1 on Friday on the NYSE — with volume that is consistently in the 1.2 billion-plus level.
In the absence of high upside volume, traders should assume the band of support and resistance outlined in Monday’s Daily Market Outlook will hold for the remainder of the year.
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.
