Stocks rallied Wednesday following two days of losses. The Dow Jones Industrial Average enjoyed a triple-digit advance, up 0.6%, the S&P 500 gained 1.1 % and the Nasdaq outperformed, up 1.6%.
The rally was led by the health care sector, which gained 2.7%, and energy stocks, up 2.2%.
The gains in health care were largely the result of the dissolution of the planned $150 billion merger between Pfizer Inc. (PFE) and Allergan plc (AGN). PFE rose 4.9% on the news and AGN gained 3.4%.
But biotech was the real star, with the iShares NASDAQ Biotechnology Index (ETF) (IBB) up 6%. Some of the day’s top gainers included Valeant Pharmaceuticals Intl Inc (VRX), up 18.9%, and Celgene Corporation (CELG), up 6%.
Oil prices jumped 5.2% to $37.75 a barrel after the Department of Energy’s weekly inventory report showed stockpiles declined by 4.9 million barrels. This was a surprise as analysts had expected an increase of 3.3 million barrels.
Investors sold traditional safe havens like gold, down 0.5% to $1,222.50 an ounce, and bonds. The yield on the 10-year Treasury note rose to 1.76% from 1.73% on Tuesday. And the defensive utilities sector, which I covered in the previous Daily Market Outlook, was the only one to decline, off 0.1%.
At Wednesday’s close, the Dow Jones Industrial Average gained 113 points at 17,716, the S&P 500 rose 21 points to 2,067, the Nasdaq gained 77 points at 4,921 and the Russell 2000 was up 13 points at 1,109.
The NYSE Composite’s primary exchange traded 869 million shares with total volume of 3.7 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 3-to-1, and on the Nasdaq, advancers led by 2.5-to-1. Block trades on the NYSE fell slightly to 7,031, down from 7,164 on Tuesday.
One of the most actively traded index ETFs for speculators is the iShares Russell 2000 Index (ETF) (IWM). As it approaches major barriers — the resistance line at $112 and the 200-day moving average at $113.08, it appears to be backing off.
Volume is declining and momentum, as measured by MACD, just flashed a new sell signal. The next support is at $107 and then $103.
SPDR S&P MidCap 400 ETF (MDY) is having a similar problem. It backed away from its bearish resistance line last week and flashed a sell signal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR).
On a brighter note, MDY has so far held above its 200-day moving average at $257.21. But MACD also flashed a fresh sell three days ago and has maintained it. Buyers are present, but not enough to punch MDY through the overhead.
Conclusion
If the bulls can’t do any better with the major indices than with the minors, we could be in for a long, sideways summer. The overall pattern is bullish, but there is a lack of momentum from buyers that is usually present at a breakout.
I believe stocks will eventually break to new highs. But if they do so this year, it will probably not occur until year end.
May is just around the corner and I doubt you need reminding of the oft-repeated ditty, “Sell in May and go away.”
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.
