Gains in beaten-down financials and transports led stocks to their highest levels since November. The Dow Jones Industrial Average closed just 2.4% below its all-time high, made in May.
The gains in the two leading sectors were spurred by better-than-expected earnings from JPMorgan Chase & Co. (JPM) and CSX Corporation (CSX), which both jumped 4.2%. However, according to FactSet, analysts have lowered their estimates for financial companies by almost three-quarters.
Positive export data from China boosted U.S. and European markets in early trade. It also caused a rally in copper and other industrial metals. However, crude oil fell 1% to $41.76 a barrel.
The euro lost 1% against the U.S. dollar at $1.1269. The yield on the 10-year Treasury note declined to 1.77% from 1.79% on Tuesday as bond prices rose. And gold dropped 1% to $1,246.80 an ounce.
At Wednesday’s close, the Dow Jones Industrial Average gained 187 points at 17,908, the S&P 500 rose 21 points to 2,082, the Nasdaq jumped 75 points to 4,947 and the Russell 2000 was up 24 points at 1,130.
The NYSE Composite’s primary exchange traded 1 billion shares with total volume of 4.2 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 4-to-1, and on the Nasdaq, advancers led by 1.3-to-1. Block trades on the NYSE increased to 6921 from 6,833 on Tuesday.
The Dow Jones Industrial Average broke above its small “V” pattern and the support line at about 17,600 that connects to its all-time high made in May. But with the exception of one day in the past month, advancing volume has been below average. In fact, most declining days pulled more volume than advancing days.
Until the Dow Jones Transportation Average closes above the resistance line at 8,275 on higher-than-average volume, it remains in a non-confirming status. And the MACD indicator is negative, although it is arching up.
Conclusion
Despite the Dow Theory non-confirmation, the overall market pattern has become more bullish. Yes, I’d like to see higher volume and broader participation with better breadth, but the pattern, though suspicious, is positive.
Another reason for my cautious approach is the reduction in earnings forecasts on some of the country’s biggest producers and banks. In my opinion, companies’ ability to meet drastically lowered estimates is no reason to pop the champagne.
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.
