A combination of better global manufacturing numbers and better-than-expected economic data boosted U.S. stocks yesterday. The catalyst of a hot new deal hitting the markets added to traders’ interest as the long-awaited offering of Facebook was filed seeking to raise $5 billion with Street expectations running to as high as $10 billion when it goes public in the spring.
A four-day losing streak was broken yesterday as the Dow Jones Industrial Average rose 84 points to 12,716, the S&P 500 gained 12 points at 1,324, and the Nasdaq rose 34 points to 2,848. The NYSE traded 892 million shares, which is slightly higher than the average volume in January on the NYSE of under 750 million shares, and the Nasdaq crossed 575 million. Advancers led decliners on the NYSE by 5-to-1 and on the Nasdaq by over 3-to-1.
After Thursday’s “key reversal day” (down), the index pulled back to its 20-day moving average (green line) on Monday, but jumped from it yesterday. By 10:00 a.m., it was up 153 points and just 15 points from the resistance line at 12,800.
But despite the powerful opening, prices sagged for the remainder of the day and, by the close, the index was selling off, dropping 30 points in the last three minutes of trading. Nevertheless, yesterday’s intraday high at 12,785 looks like the beginning of the second run at a new two-year high in less than a week.
Yesterday, much was made of the golden cross from the S&P 500, but the Dow made an equally impressive cross in December with hardly any notice from the press.
The real winner yesterday was the Nasdaq, driven by a surge in the technology sector. Yesterday’s successful penetration of the bearish resistance line drawn from the May and July highs could be the beginning of a successful thrust through the May high at 2,888. The powerful run was backed by a buy signal from the stochastic despite the indicator’s lofty number.
Conclusion: Yesterday’s action was focused on two narrowly based indices, the Dow industrials and the Nasdaq, which was mostly driven by one sector. The volume increased with the thrust higher, and that is supportive of higher prices, but 892 million shares is traditionally too low for a major breakout. A close by the S&P 500 at over the July high at 1,347 would add to the bullish evidence.
Those who take aggressive positions now may be rewarded, but the market is extremely overbought and a reversal at this lofty height could result in large losses. Thus, positions taken now, especially in technology and other higher P/E stocks, should be protected with 10% stop-loss orders.
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.
