Don’t Count on a Rebound Just Yet

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The market advanced Friday despite concerns over an interest rate hike in June, which the Federal Reserve said is a possibility as long as the economy keeps improving. The Dow Jones Industrial Average rose 0.4% and the S&P 500 gained 0.6%. The Nasdaq jumped 1.2%, but the index is still down 4.8% for the year.

Bank stocks, which will benefit from a rate increase, had a good week with the KBW Nasdaq Bank Index up 4.2%.

FactSet reported Q1 earnings dropped 6.8% year over year. This marked the fourth consecutive quarter of falling profits, but was less than the projected decline of 8.5%.

Foot Locker, Inc. (FL) fell 6.5% after announcing sales at existing stores increased less than anticipated. Campbell Soup Company (CPB) lost 6.4% after quarterly sales missed expectations. And Applied Materials, Inc. (AMAT) jumped 14% after reporting orders hit a 15-year high.

July WTI crude oil futures fell 0.5% to $48.41 a barrel, while June gold lost 0.2% at $1,252.90 an ounce.

At Friday’s closing bell, the Dow Jones Industrial Average gained 66 points at 17,501, the S&P 500 rose 12 points to 2,052, the Nasdaq advanced 57 points to 4,770, and the Russell 2000 jumped 18 points to 1,112.

The NYSE Composite’s primary exchange traded 976 million shares with total volume of 3.5 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 3.2-to-1. Block trades on the NYSE declined slightly to 5,334 from 5,369 on Thursday.

For the week, the Dow fell 0.2%, the S&P 500 gained 0.3%, the Nasdaq rose 1.1%, and the Russell 2000 gained 0.9%.

MDY Chart
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Chart Key

Friday’s recovery resulted in a close above SPDR S&P MidCap 400 ETF’s (MDY) 50-day moving average at $263. MDY is now challenging the 20-day moving average and the resistance line at $265, as well as the short-term trendline drawn from the April high at $271.

Volume, both buying and selling, is low and MACD, a longer-term indicator, is negative. The trading range is very tight with support at the 50-day at $263 and resistance at $265. More solid support rests at the 200-day at $256.

IWM Chart
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The iShares Russell 2000 Index (ETF) (IWM) is also in a very narrow range. It marginally crossed its 50-day moving average at $110.60 on Friday, closing at $110.79. In other words, it was a draw.

Buying volume was higher than average but merely offset the sellers earlier in the week. Like MDY, MACD is also negative.

Conclusion

Both bulls and bears must be frustrated with the market’s lack of progress. However, narrow ranges typically break hard. Unfortunately, there is no way to determine the direction of a future break.

Friday’s NYSE volume of 976 million shares with a reduction in block trades is hardly indicative of a break higher. Friday was also options expiration day, but you would hardly have guessed it by the low volume.

Also note that the Dow is still below the neckline of the head-and-shoulders pattern at 17,650, which I discussed in the previous Daily Market Outlook.

I remain neutral on the market with a slight negative bias.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2016/05/daily-market-outlook-dont-count-rebound-just-yet/.

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