As we neared the end of a week that could determine the future of the euro zone, stocks fluctuated wildly. After opening lower yesterday, bank stocks led a rally when the European Banking Authority (EBA) said that the results of a recent “stress test” would be announced today.
Volatility was high with the major indices reversing course several times. And just when it looked like the Dow industrials had achieved a solid gain for the day, the index lost about 50 points in the last seconds of trading. Reports that S&P may downgrade the EU’s debt rating caused wild fluctuations, but at the final bell, financial stocks led other sectors, up 1.2%, with health care second, up 0.6%.
For the day, the Dow Jones Industrial Average rose 0.38%, the S&P 500 gained 0.2%, and the Nasdaq fell 0.01%. Breadth was flat on both the NYSE and Nasdaq, with slightly more gainers on the Big Board and more losers than gainers on the Nasdaq. NYSE volume came in at 967 million shares, and 449 million shares traded on the Nasdaq.
The sluggish movement forward of the general market is well illustrated by the difficulties faced by the quality stock index — the Dow 30. In the 29 days of trading since Oct. 27, 18 days, or 62% of the time, has been spent within the narrow trading zone of 12,000 to 12,300.
And in that time frame, in just one seven-day period the index dropped to a low of 11,193, which is over 9% lower than the high of Oct. 27. This high volatility with low volume and, at times, extreme breadth, is characteristic of a headline-driven market where every news item either stops rallies or declines in their tracks or violently propels them in a new direction.
The chart above is of the last two days with each vertical line representing five minutes of trading. It illustrates the wild moves of an irrational, news-oriented market that is best played through options.
In the first five minutes of trading on Wednesday, the Dow fell almost 150 points, destroying the small gains made on Tuesday. However, less than an hour before the closing bell, the market staged a rally on rumors of a positive statement from the European Central Bank. But the final five minutes of trading ended with a crushing sell-off of over 50 points, and the Dow closed just 46 points ahead for the day.
Our internal indicators are now very overbought. But, in just two week’s time, the AAII weekly sentiment report has moved from bearish to modestly bullish as the bulls fell from 41.94% to 33.04%, and the bears rose from 31.05% to 39.42%. For those not familiar with the AAII sentiment indicator, a higher bullish number is a negative for the market and a higher bearish number is a positive.
So, with low volume, high volatility, and conflicting technical indicators and charts, it is wise to await the outcome of Friday’s meetings. Europe has controlled the market’s direction since early this year, and it is likely that the two-day summit of European leaders, which ends on Friday, and the European Central Bank’s rate-setting meeting on Thursday will set the tone for the remainder of this year and possibly even the next.
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.
