On Wednesday, U.S. stocks opened lower on news that Ireland’s sovereign debt rating had been reduced. The lower rating sent Europe’s markets into a tailspin, but before the close much of the early losses were recovered.

The Dow and its companion indices recovered most of their early losses with the Dow bobbing back from the sub-10,000 level for the second day in a row and closing 0.2% higher. The modest gain came despite Ireland’s debt problem and poor economic reports on this side of the pond.

The durable goods orders for July increased by just 0.3% where 3% was expected. New home sales for July fell 12.4% month-over-month to an annualized rate of 276,000 units. Analysts had been expecting 334,000 units.

But while housing data have disappointed all week, Toll Brothers, Inc. (NYSE: TOL) reported a 16-cent profit for fiscal Q3 versus an expected loss of 14 cents. TOL shares rose 5.8% on the news, and other homebuilders benefited from gains. D.R. Horton, Inc. (NYSE: DHI) rose 4.6%, PulteGroup, Inc. (NYSE: PHM) gained 3.1%, KB Home (NYSE: KBH) was up 4.65%, and Lennar Corporation (NYSE: LEN) rose 3.6%.

Healthcare stocks did well yesterday. Coventry Health Care, Inc. (NYSE: CVH), UnitedHealth Group Inc. (NYSE: UNH) and WellPoint, Inc. (NYSE: WLP) rose 4.5%, 3.4%, and 2.7%, respectively.

Technology stocks led the Nasdaq to a 0.84% gain with Apple Inc. (NADAQ: AAPL) and Google Inc. (NASDAQ: GOOG) leading the gainers.

Treasuries fell with yields up to 2.53% on the 10-year note. The euro rose to $1.2652 versus the U.S. dollar.

At the close, the Dow Jones Industrial Average was up 20 points to 10,060, the S&P 500 rose 3 points to 1,055, and the Nasdaq gained 18 points to 2,142. 

Volume on the NYSE totaled 1.1 billion shares with advancers ahead of decliners by 1.6-to-1. The Nasdaq crossed 578 million shares, and advancers outpaced decliners by 1.7-to-1.

October delivery crude oil rose 89 cents to $72.52 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) fell 16 cents to $51.24.

August gold gained $7.70, closing at $1,239.50 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 4.23 points to 177.39.

What the Markets Are Saying

On Tuesday, the S&P 500 closed within the important 1,055 to 1,040 support zone. And yesterday, the index dropped to 1,040, and then performed a “key reversal.” A key reversal occurs when a stock or index opens below the prior day’s low and closes higher than the prior day’s close. Most technicians, including me, regard these reversals as significant for traders, but not for the overall trend. They are one of the ripples on the sea that I mentioned in the segment on the Dow Theory.

But technically, yesterday’s key reversal may turn out to be more than just a “ripple on the sea.” First, even though volume was light by historical standards, it was the highest in nine sessions, it occurred just as momentum turned slightly more positive, it matched the Moving Average Convergence/Divergence (MACD) reversal level of the low on July 1, and it triggered a short-term buy signal from our in-house Collins-Bollinger Reversal (CBR) indicator. 

That’s a lot of technical stuff to pack into a single day, so at the very least, yesterday’s tape action strongly confirmed the importance of 1,040 as a very significant support line. In fact, a close under 1,040 could now be viewed as a strong short-sell trigger since a challenge to the July low would almost certainly be imminent.

The question of whether S&P 1,040 will hold will be settled if the S&P can close higher than Tuesday’s high of 1,063. If that occurs, then the summer trading range of 1,040 to 1,060 will remain intact with the next move likely to be higher as buyers run stocks back to the July high. But if buyers melt away, as they have in recent sessions, shorts will pile on and the yesterday’s signal will turn from a positive to a strong negative.

Find out how to trade this market here.

Today’s Trading Landscape

Earnings to be reported before the opening include: A-Power Energy, Bio-Reference Labs, Conns, Double Hull Tankers, Fred’s, Gerber Scientific, Met-Pro Corp., Patterson Companies, Regis and Ship Finance International.

Earnings to be reported after the close include: Aruba Networks, bebe stores, Dollar Financial, International Rectifier, J. Crew, Micros Systems, Netezza, Novell, OmniVision and Solera.

Economic reports due: jobless claims (the consensus expects 495,000), EIA natural gas report, Fed balance sheet and money supply.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

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