The S&P 500 and other major indices soared Wednesday on news that Congress had avoided the fiscal cliff. The last-minute deal drove all 30 Dow stocks higher, and 94% of the stocks of the S&P 500 made gains. Although the rally was broad-based, there was a focus to the buying, and that was small caps, transportation and technology.
At the close, the Dow Jones Industrial Average vaulted 308 points to 13,413, the S&P 500 gained 36 points at 1,462, and the Nasdaq jumped 93 points to 3,112. The NYSE traded 859 million shares and the Nasdaq crossed 506 million. Advancers led decliners by 6.8-to-1 on the Big Board and by 6.5-to-1 on the Nasdaq.
Even before the fiscal cliff deal, readers knew that they were still in a bull market, because in December, prices continued advancing from the 17-month moving average. The chart supports higher prices and those with long-term portfolios should not take profits but rather continue to hold for additional gains.
After a period of concern over Washington’s inability to avoid the cliff, the CBOE Volatility Index (VIX) jumped to over 22. This is an unusually sharp advance and illustrates that anxiety was reaching panic levels just prior to politicians’ agreement to avoid a financial catastrophe.
The Russell 2000 small-cap index blasted to a new all-time high Wednesday. The overall pattern is a classic “V” formation, which means that it will probably continue to make new highs. However, after Wednesday’s big blast, it would not be unusual for it to pull back and consolidate before jumping again — note the overbought MACD.
Conclusion: With the fiscal cliff behind it, the stock market has confirmed that the recovery attempt of December is still intact. January has begun with a strong rally taking the S&P 500 through a resistance line at 1,445 (see Dec. 24 Daily Market Outlook). Its new objective is the Sept. 14 high of 1,475.
The last peak for the Dow was at 13,366. That, too, has been shattered by the recent rally, but it should encounter considerable resistance at the September/October band of resistance at 13,400 to 13,600 (see Dec. 28 Daily Market Outlook).
The Nasdaq has blasted north of 3,100, but as of now, has yet to exceed the Oct. 17 high of 3,112 (see Dec. 31 Daily Market Outlook). Above that there is a band of resistance with a top at 3,197, its September high, and it has much work to do before the bearish horn pattern and death cross may be dismissed.
But with the market overcoming some major resistance zones following the recent crisis, the pressure is on the bulls to support the current rally with higher volume and breadth. Wednesday’s breadth was excellent but volume was lacking. If they are able to rise to the challenge, then last year’s highs could be overcome in the first two weeks of January, setting the stage for a bright new year.
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.