Dead Cat May be Just About Done Bouncing

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Stocks enjoyed their second day of advances as Brexit fears subsided, with buyers overcoming about 75% of recent losses. The recovery put the major indices back in the black for the year, with the Dow Jones Industrial Average up 1.6% and the S&P 500 up 1.7%. But Nasdaq stocks were favorites, with the index ending the day 1.9% higher.

The European bourses also rallied with France’s CAC 40 up 2.6% and London’s FTSE 250 adding 3.2%.

In the United States, the financial sector was the clear leader, up 2.3%. JPMorgan Chase & Co. (NYSE:JPM) rose 2.8%, Citigroup Inc (NYSE:C) gained 4.2% and Bank of America Corp (NYSE:BAC) jumped 3.9%.

The major indices were also driven higher by a big increase in the price of crude oil, up 4.2% to $49.88 a barrel. Exxon Mobil Corporation (NYSE:XOM) gained 1.7%, Occidental Petroleum Corporation (NYSE:OXY) jumped 1.5% and Chevron Corporation (NYSE:CVX) leapt 1.8%.

The yield on the benchmark 10-year U.S. Treasury note rose to 1.50%, up from 1.463% on Tuesday, as investors sold bonds. The euro advanced 0.3% against the U.S. dollar to $1.1107.

The Wall Street Journal attributed the optimism in part to predictions of rate cuts from the Bank of England and further delays in interest rate increases from the Federal Reserve. But it seems not all investors were convinced, as gold gained 0.7% to $1,326.90 an ounce.

At Wednesday’s close, the Dow Jones Industrial Average was up 285 points at 17,695, the S&P 500 rose 35 points to 2,071, the Nasdaq jumped 87 points to 4,779, and the Russell 2000 was up 24 points at 1,132.

The NYSE Composite’s primary exchange traded 1 billion shares with total volume of 4.2 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 5.9-to-1, and on the Nasdaq, advancers led by 3.8-to-1. Block trades on the NYSE fell to 5,799 from 6,103 on Tuesday.

IWM Chart
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Chart Key

The small-cap iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) declined to $108 and held at that crucial line. Shares then jumped through their 200-day moving average, but were halted by the 50-day at $113.

The 200-day at $110.80 remains a key inflection point. It must survive any further selling if small caps are to continue higher.

Conclusion

Traders seem less concerned with the Brexit situation by the day. The U.K. will take a long time to exit the EU, and it accounts for less than 4% of U.S. exports and 3% of imports.

As for the technicals, I say, “Volume, volume, volume.”

Volume on the past two advancing days was less than volume on the two prior declining days. And block trades fell as well. To me, this indicates that the dead cat has almost finished its bounce but is still in the air because of some lagging short covering. Technically, we are not out of the woods yet.

There are many trend indicators to watch for, but just one technical line in the sand: the S&P 500’s 2,040 support line. It is the primary inflection point. If it holds, we have a reasonable chance of making new highs, but if the S&P 500 closes below it for the third time, watch out because the shorts will take charge of the summer trading picture.

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/2016/06/daily-market-outlook-dead-cat-may-just-done-bouncing/.

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