After two days of heavy selling, which drove the Dow Industrials lower by 440 points, we should have expected to see buyers take a run at blue-chip bargains, and that’s what we got yesterday. But it was again another example of how sensitive markets are to headline news.
The euro was the focus of attention for most of the day. While it was down, our markets fell, and when it finally closed higher, our markets rallied. A weak euro early in the session caused some selling in the commodities areas. But then the euro rallied, showing strength throughout the remainder of the trading day. And in the final hour, blue chips led the Dow Jones Industrial Average (DJI) to a triple-digit gain.
The Dow’s reactive jump indicates that large buyers are again willing to step up and buy high-quality stocks at around Dow 9,700. But Nasdaq was in the red for the entire session and closed lower by 0.2% as a result of weakness in technology issues. The Russell 2000, which also lists more risky technology stocks, similar to Nasdaq, fell 0.1%. The Philadelphia Semiconductor Index (NASDAQ: SOX) fell almost 4%.
At the close, the Dow had gained 123 points to 9,940, the S&P 500 (SPX) rose 12 points to 1,062, and the Nasdaq (NASD) fell 3 points to 2,171.
The NYSE traded over 1.6 billion shares with advancers ahead by 1.5-to-1, but the Nasdaq showed more decliners by the same ratio on volume of 779 million shares.
Crude oil for July delivery rose 55 cents, closing at $71.99 a barrel. The Energy Select Sector SPDR (NYSE: XLE) rose 85 cents to close at $51.95.
August gold rose $4.80 to $1,245.60 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) gained 2.31 points to 174.56.
What the Markets Are Saying
Yesterday’s late blue-chip rally resulted in a short-term reversal for both the Dow Industrials and the S&P 500. But the other broad-based index, the NYSE Composite, failed to reverse despite closing more than 1.24% higher. And the Nasdaq, the broad-based former leader when stocks rallied to new highs, even closed lower by several points. So what gives?
When the blue chips are the focus of attention for just a short run, at a major support line, and on relatively light volume, there is usually little technical meaning to the move. Yesterday, the broad indices spent most of the day on the minus side, and that was where the greatest amount of volume was expended. The late rally, although impressive in the number of points per minute, merely resulted from a temporary exhaustion of sellers. The momentum indicator ended on the minus side, so the trend is still down.
Meanwhile, the moving averages of the major indices, chiefly the 20-, 50-, and 200-day, are flashing bear market even as prices hold above a fragile quintuple-bottom. The first genuine sign that the market was in trouble occurred on May 6, with the failure of prices to hold above the 50-day moving averages. Any thought that this was just a trading glitch vanished when, on May 20, the Dow plunged again, this time through the vaunted 200-day moving average. And that day’s violent drive lower even forced the 20-day moving average to cross below the 50-day, which resulted in an important intermediate sell signal.
Yesterday’s reversals could attract enough quality buyers to rally the Dow Industrials to the 200-day moving average now at 10,305. But unless the buyers can muster big blocks of support, yesterday’s reactive bounce will turn out to be nothing more than a 30-minute splash of black in a sea of red.
Today’s Trading Landscape
Earnings to be reported before the opening include: Brown-Forman, Canadian Solar, Ciena, Piedmont, Stewart Enterprises, Titan Machinery and Vail Resorts.
Earnings to be reported after the close include: Analogic, Measurement Specialties, Men’s Wearhouse, North American Energy and Shuffle Master.
Economic reports due: MBA purchase applications, wholesale trade, EIA petroleum status report and Beige Book.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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