Stocks meandered Monday, finishing slightly higher. The session was tame compared to Friday’s wild ride. The low volume was undoubtedly due to this being a holiday-shortened week with markets set to be closed in observance of Good Friday.
Stocks recovered from a lower opening, which was due in part to a 7.1% month-over-month decline in existing home sales. Both the Dow Jones Industrial Average and S&P 500 gained 0.1% for the day, and the Nasdaq rose 0.3%.
Bargain hunting in the health care sector, up 0.6%, helped stabilize the broader market. Valeant Pharmaceuticals Intl Inc (VRX) jumped 7.4% after the company named activist investor Bill Ackman to its board and began a search for a new CEO.
WTI crude oil gained 1.2% to $39.91 a barrel. Gold settled at $1,244.20 an ounce, down 0.8%, the apparent result of profit taking.
The yield on the 10-year Treasury note rose to 1.92%, from 1.88% on Friday, as investors sold bonds.
At Monday’s close, the Dow Jones Industrial Average was up 22 points at 17,624, the S&P 500 gained 2 points at 2,052, the Nasdaq rose 13 points to 4,809 and the Russell 2000 fell 3 points at 1,099.
The NYSE Composite’s primary exchange traded 836 million shares with total volume of 3.3 billion. The Nasdaq crossed 1.6 billion shares. On both major exchanges, advancers and decliners were almost even. On the NYSE, block trades declined sharply to 4,986 versus 8,492 on Friday.
The Volatility S&P 500 (VIX), which is purported to measure investor fear, closed at a seven-month low on Monday, indicating extreme complacency. However, complacency readings are often misleading with many coming prior to market holidays. For example, note the low VIX readings at the end of November and December prior to Thanksgiving and Christmas.
After forming a “W” bottom, iShares Russell 2000 Index (ETF) (IWM) has run into a wall of sellers. Selling volume has been consistently higher than buying volume since early this month.
A gap at $112.50 to $110.83 remains open and could serve as a target if and when IWM breaks from the current flag.
Conclusion
At five weeks old, the current rally looks long in the tooth. With the S&P 500 up 13.3%, Jeff Saut of Raymond James notes the index is 2 standard deviations above its 50-day moving average, the most overbought reading in over a year. Oil and the U.S. dollar are also overbought.
We are due for a correction, and I think a mild one is about to occur. The target is the support zone at 2,020 to 1,990, with the 200-day moving average at 2,017.64 a bare minimum target.
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.
