Friday’s market, like Thursday’s, started off strong, but stocks fell as the afternoon approached. By the close, stocks were mixed with the Dow Jones Industrial Average (DJI) and the S&P 500 (SPX) marking slight gains, and the Nasdaq (NASD) was down slightly.
The buying that occurred at the opening resulted from a stronger euro after the European Union indicated their willingness to back Greece on an ongoing basis. But as that headline lost its appeal, around noon it was reported that a South Korean vessel was sinking, and that North Korea may have been involved in an attack on the ship. From that point on, stocks headed south.
Treasuries gained as a result of the Korean situation, and the U.S. dollar closed slightly higher.
There was little economic news reported on Friday, except for a slightly downward revision of Q4 GDP. There was also a better-than-expected revision of the March University of Michigan investor confidence reading. But neither revision seemed to have much impact on trading.
It seems that the vernal equinox has ushered in spring fever.
Though the session was flat, one subsector showed strength throughout the day, and that was the solar stocks: First Solar (FSLR), up 4%, Suntech (STP), up 2%, and SunPower (SPWRA), up 1%. All three stocks pulled in higher-than-average volume.
At the close, the Dow gained 9 points at 10,850, the S&P 500 rose 1 point to 1,167, and the Nasdaq fell 2 points to 2,395.
The NYSE traded just over 1 billion shares with advancers and decliners at a breakeven. The Nasdaq crossed 624 million shares, and decliners there were slightly ahead of advancers.
May crude oil lost 53 cents, closing at $80 per barrel, and headed even lower in electronic trading after the close on concerns about international energy demands. The Energy Select Sector SPDR (XLE) closed at $56.08, up 2 cents.
Gold for June delivery rose $11.30 an ounce, closing at $1,105.40. The PHLX Gold/Silver Sector Index (XAU) gained 3.1 points to close at 161.41.
What the Markets Are Saying
Friday’s tape action did little to resolve the unconventional near-term condition of the stock market that I mentioned Friday morning. With traders in a spring fever mood on Friday, volume was again low and breadth so close that the session turned into a stalemate.
Let’s take a pause and consider the current state of the stock market from a short-term investor’s or a trader’s outlook: The Dow has risen four consecutive weeks, the longest winning streak since August 2009. For the year, the Dow is up 4%, the S&P is up 4.6%, and the Nasdaq is up 5.6%. Much of the fuel needed to keep stocks moving higher came from the bond market and mutual funds. But mutual funds’ cash position is now very low following 18 months of the highest burn rate ever recorded.
And equities have consistently outperformed bonds since the first of the year because many investors felt that low interest rates favored going for the riskier return of stocks. But after such an extraordinary run by equities, and with bond rates improving, the risk of a correction is now so high that momentum alone is carrying the market.
As the Dow approaches the 11,000 mark, its internal and sentiment numbers are universally overbought and its Relative Strength Index (RSI) is solidly in the overbought zone. Risk of an immediate but normal round of profit-taking is huge unless Thursday’s reversals are quickly erased.
Long-term investors should remain invested and prepare a list of high-quality stocks to buy at attractive prices. But traders should position themselves for a correction.
Today’s Trading Landscape
Earnings to be reported today include: Apollo Group, Neogen and Oxford Industries.
Economic report due: personal income and outlays (the consensus expects 0.1% for personal income and 0.3% for consumer spending).
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