On Friday, stocks ended the third quarter with a “risk-on” strategy. But buying was mostly due to a rebound in the banking sector, which had opened the week on a down note.
Central banks had kept the pressure on by keeping interest rates low. Some banks, like Deutsche Bank AG (USA) (NYSE:DB), are feeling the pressure due to a thin capital position and started off on Friday down 9%, but then rallied, closing up 6.4%. Other banks could feel a pinch because of the scandal involving sales practices at Wells Fargo & Co (NYSE:WFC).
Friday’s gains resulted in the S&P 500 rising 3% in Q3. The Dow Jones Industrial Average gained 2.1%, and the Nasdaq rose 9.7% for the quarter. The KBW Nasdaq Bank Index gained 9.2%, its best result for a quarter in almost three years.
On Friday’s close the Dow Jones Industrial Average gained 165 points at 18,308, the S&P 500 rose 17 points to close at 2,168, the Nasdaq closed at 5,312, up 43 and the Russell 2000 gained 14 at 1,252. The NYSE’s primary exchange traded 1.2 billion shares with total volume of 4 billion shares, and the Nasdaq traded over 2 billion shares. On the Big Board advancers outpaced decliners by 2.4-to-1, and on the Nasdaq advancers led by 2.7-to-1. Blocks on the NYSE rose to 5,640 from 5,467 on Thursday and from 4,596 one week ago.
For the week: The DJIA rose 0.3%, the S&P 500 gained 0.2%, Nasdaq was up 0.1% and the Russell 2000 fell 0.2%.
Last week was a volatile affair, again driven by talk of the raising or cutting (Japan/Germany) of interest rates, a scandal at Wells Fargo, and their rally on Friday following a reversal down on Thursday.
The SPDR S&P Bank ETF (NYSEARCA:KBE) shows a three times, or four, failure to pop above the resistance line at about $33.60. Thursday’s CBR Sell signal was challenged on Friday but held again, making that number a significant line of resistance, or inflection point. Volume shows mild distribution from sellers, and MACD is indicating mild strength.
Click to EnlargeWhile controversy about banks was the talk of the week, the exchange-traded fund iShares Russell (NYSEARCA:IWM) found support at its 50-day moving average and the support line of a bull channel that started in January. On Thursday the ETF reversed up at its 50-day moving average, now at 122.61.
Conclusion: Complacency is low even after Thursday’s spike of 26%, as I’ll show in a chart of the VIX tomorrow. But, it closed 13% higher and, as Michael Ashbaugh pointed out on Friday, “Not too fearful, not too complacent.” However, since a Fed policy of “do nothing to upset the apple cart” is driving the market, we should be alert for a possible correction, especially if interest rates are hiked immediately after the election.
Overall despite Thursday’s day of panic, the uptrend is still intact. However, as noted above, the small caps are holding within a very clearly defined bull channel. As long as that channel is intact, that is where we should find the most attractive trades.
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.
