In another day of broad-based buying, but with very light volume — the lightest volume in over a month — the major indices moved against some formidable technical barriers yesterday. The move higher was attributed to mostly better-than-expected economic numbers released before the opening.
The producer price index (PPI) rose a hefty 1.4% month-to-month versus an expectation of 0.8%. And the leading indicators increased 0.3% in January, but that was less than the 0.5% that was expected. The Philly Fed Index for February came in at 17.6 versus an expected 17, and that marked a clear improvement over the 15.2 that was reported in January. Weekly jobless claims for the week ended Feb. 13, were a disappointment, though, up 31,000 from the prior week.
Some of the best performers yesterday were in the materials sector. Both Barrick Gold Corp. (ABX) and Kinross Gold (KGC) rose on better-than-expected earnings. Steel stocks increased following an upgrade of Nucor Corp. (NUE) by Merrill Lynch.
Technology stocks were helped by better-than-expected earnings by Hewlett-Packard (HPQ).
But the real shocker came after the closing bell when the Fed surprised the markets with an increase in the discount rate to 0.75%. In after-market trading, prices declined sharply on the news, despite the low impact on consumers since the rate only affects banks who borrow from the Fed. But some see the move as notice that the central bank may follow up with further rate increases later in the year.
At the close, the Dow Jones Industrial Average (DJI) gained 84 points at 10,393, the S&P 500 (SPX) rose 7 points to 1,107, and the Nasdaq (NASD) gained 15 points to 2,242.
The NYSE traded just under 1 billion shares with advancers over decliners by slightly more than 2-to-1. The Nasdaq traded 550 million shares and advancers exceeded decliners by a ratio of 3-to-2.
March crude oil rose $1.73 to $78.38 a barrel, and the Energy Select Sector SPDR (XLE) gained 32 cents to close at $57.14.
April gold fell $1.40, settling at $1,118.70, and the PHLX Gold/Silver Sector Index (XAU) fell 2.32 points to 165.29.
What the Markets Are Saying
For the third consecutive day, stocks traded higher, but for the second day, volume was well below normal. However, two of the major indices, the Dow and Nasdaq, managed to close above their respective 50-day moving averages. But the two broadest-based indices, the S&P 500 and the NYSE Composite, failed to breach the barrier by a wide margin.
This week’s sentiment indicators were just as flat as the internal indicators that we reviewed yesterday.
The most important indicator of the public’s outlook is the American Association of Individual Investors (AAII) sentiment survey. It is a contra-indicator meaning that a bullish reading is negative and bearish reading is positive.
This week shows that 35.85% are bullish and 35.22% bearish. The bullish figure is almost unchanged from last week, but the bearish number decreased from 41.88% to 35.22%, and there was an increase in those who were neutral from 21.37% to 28.93%.
The outlook for the market is therefore unchanged. The key to whether or not stocks are able to overcome the initial shock of yesterday’s Fed’s rate hike should be known by today’s close. The initial impact may be negative and could trigger an initial high-volume sell-off. But that sell-off could result in bargain-hunters driving prices up by the close.
Again, watch both volume and breadth — and especially the volume numbers. If stocks pick up large blocks from sellers and fail to turn the tide with an equal or greater number of buyers, spring might be best spent away from the market.
Today’s Trading Landscape
Earnings to be reported include: American Woodmark, Amerigroup, Brady, Brookfield Asset Management, HMS Holdings, Huntsman, Interline Brands, JC Penney, LifePoint Hospitals, Penske Automotive Group, PG&E, Pinnacle West Capital, Ruth’s Hospitality Group, Shire plc and StarTek.
Economic report due: consumer price index (the consensus expects 0.3%, and 0.1% ex-food and energy).
Quarterly earnings news (earnings vs. estimates):
- Dell (DELL): 28 cents vs. $0.27,
- Amerigroup (AGP) $0.79 vs. $0.28,
- Huntsman (HUN) $0.27 vs. ($0.12)
- Interline Brands (IBI) $0.19 vs. $0.19.
Related Articles:
- How to Profit From the Fed’s Rate Hike
- How to Stay One Step Ahead of a Major Reversal
- Use Trendlines to Predict the Market’s Next Move
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