On Tuesday, stocks closed mixed with a preference for small-caps as they took gains in some blue chips and big-cap stocks.
Profit-taking started immediately, with a divergence of better-quality stocks being sold. Banks and other financials fell 1.4% at the close, while technology gained 0.9% and consumer discretionary rose 0.5%. Eight of the eleven sectors of the 500 lost ground. From the election until Monday most investing was based on the expectations that the new administration will increase fiscal spending and lower corporate tax rates. The goal is to raise interest rates, inflation and promote growth.
Yesterday buying slowed slightly, but floor traders said that consolidations are a good sign and that the “reflation trade” will probably resume again. The chief investment officer at Wells Fargo Private Bank was quoted by The Wall Street Journal who said “there’s a level of optimism I haven’t seen in a while.”
Crude oil WTI fell 0.7% at $45.56 per barrel due to an EIA report that crude oil supplies increased by 5.27 million barrels instead of an estimate of 1.48 million.
At the close, the Dow Jones Industrial Average fell 55 points to 18,868, the S&P 500 fell 3 to 2,177, the Nasdaq gained 19 points, closing at 5,295 and the Russell 2000 was unchanged at 1,302. The NYSE’s primary exchange traded 895 million shares with total volume of 3.8 billion shares. The Nasdaq crossed over 2 billion shares. On the Big Board and the Nasdaq, advancers slightly outpaced decliners. And on the NYSE, blocks fell to 5,293 from 5,712, showing an almost daily decline since a week ago at 7,339 blocks crossing.
The difference between the chart of the 500 vs. that of Nasdaq is small, but Nasdaq clearly has the better position, with a “Deep V (Bullish)” and a positive close with higher-than-average volume. But institutions clearly went for the 500 immediately following the election: The spike in volume was extraordinary.
Conclusion: After a wild ride with lots of volume, it is time for the major averages to consolidate their gains. The next barrier for the 500 is yesterday’s close at 2,180. Resistance for the Nasdaq is the mid-October high at 5,311, and a break through that barrier from a deep V should result in a quick new high accompanied by high volume.
Note: My charts are not predictions but guidelines for my readers. For example the barrier at 5,311 (Nasdaq) should be noted as a resistance line and if the Naz closes above it, the chances are good that the high at 5,340 will come under attack. Effective traders know the resistance and support lines and use them as trigger points, not predictions.
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.
