Stocks initially fell sharply yesterday, following a report of flat growth and an initial jobless claims number that was greater than expected. However, the afternoon provided a much-needed rally in the defensive sector. And energy, which was lower in the morning, rose to breakeven at the closing bell.
The Dow Jones Industrial Average ended the day at 13,146, up 20 points, the S&P 500 fell 2 points to 1,403, and the Nasdaq was down 10 points to close at 3,095. The NYSE traded 817 million shares, and the Nasdaq crossed 472 million. Decliners were ahead of advancers on both exchanges by about 1.4-to-1.
Although a strong rally rescued stocks from another day down, it was the defensive stocks that led the way with utilities and health care, the two most prominent groups. Oil fell 2.5% to a six-week low, and natural gas fell to a 10-year low.
Two charts are of most interest since both could indicate the immediate future of the broad market.
The Nasdaq opened a breakaway gap on March 26 from 3,070 to 3,090, and yesterday it closed the gap perfectly with an intraday low of 3,069.81. This then becomes the first support; a break of it would almost certainly result in a test of a stronger support line at 3,000.
The chart of the S&P 500 is similar but more tenuous with its first initial support line at 1,390, just 13 points from yesterday’s close. A break of it would also slice through the support of the 20-day moving average and the sharply advancing support line (red dotted line) and open the way for a pullback to the 1,350 area.
Our internal indicators are less indicative of anything but a continuation of a sideways move, which could be interpreted as a prediction of a mild consolidation.
The AAII bullish sentiment is at 42.47%, down from 44.51% at the beginning of March, while the bearish sentiment is at 25.48% versus 26.83% on March 1. And we discussed the other sentiment indicator, the CBOE Volatility Index (VIX), on Wednesday, and concluded that it too suggests a period of consolidation with a bias to the upside.
Conclusion: We should focus on the price movements of the various leading indices and prepare to add our favorite long-term quality stocks to our portfolios. Traders should find opportunities to play the more volatile swings that are represented by the 3X ETFs like Direxion Daily Small Cap Bear 3X Shares(NYSE:TZA) and Direxion Daily Small Cap Bull 3X Shares (NYSE:TNA).
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.