It was all about Europe again Tuesday, following polls that showed a pro-euro zone bias. The market ignored an early disappointing U.S. consumer confidence number and a downgrading of Spain’s credit rating.
At the close, the Dow Jones Industrial Average was up 126 points to 12,581, the S&P 500 rose 15 points to 1,332, and the Nasdaq was up 33 points at 2,871. The NYSE traded 714 million shares and the Nasdaq crossed 458 million. Advancers outnumbered decliners by 3.7-to-1 on the Big Board and by 2.3-to-1 on the Nasdaq.
Shortened holiday weeks often produce countertrends with low volume. Such was the trading Tuesday as positive breadth picked up but volume remained low.
The S&P 500 could continue to rally for the remainder of the week (subject to European news) and even run to its neckline (resistance) at 1,340 or even slightly higher. A bearish relief rally flag is now very clear. Flags almost always break in the opposite direction — in other words, down. The next support zone is at 1,264 to 1,293.
The Russell 2000 small-cap index is moving along slightly faster than the senior indices. It is now almost in contact with the 20-day moving average at 781. A penetration of the 20-day could bring in buyers, but the penetration of it is of no consequence. The next important resistance is the neckline at 785 and then the 50-day moving average at just above 800.
The world continues to rush to the U.S. dollar, but reacts to the slightest hint of a recovery in Greece and Spain. Thus the dollar, as evidenced by the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP), fell slightly yesterday on profit-taking and hope.
But the euro is doomed. As reported in The Wall Street Journal, “For the first time, the two-year German bond yield may dip below zero, a rare occurrence in the global fixed-income universe.” There is a rush to safety in Europe.
Conclusion: The current mini-rally could possibly continue through the remainder of this week. However, the near and intermediate trends are down, so traders and investors alike should sell into this bounce.
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.
