Flight to Safety Says Something About This Rally

by Sam Collins | January 31, 2014 2:32 am

Stocks ended higher Thursday after a volatile session in which all 10 of the S&P 500’s sectors gained. Earnings were the major focus of the advance, and some analysts said that revenues were improving despite a report from CNBC that 60% of the S&P companies that have reported earnings have reduced their forward revenue estimates.

Facebook (FB[1]) and Visa (V[2]) Q4 reported better-than-expected quarterly earnings and revenues. And after the close, Google (GOOG[3]) reported that even though earnings fell short of estimates, revenues were higher than expected.

At Thursday’s close, the Dow Jones Industrial Average gained 110 points at 15,849, the S&P 500 rose 20 points to 1,794, and the Nasdaq jumped 72 points to 4,123. The NYSE traded total volume of 3.5 billion shares, and the Nasdaq crossed 2.2 billion. Advancers led decliners on both major exchanges by over 3-to-1.

RUT Chart
Click to Enlarge

Chart Key[4]

The small-cap Russell 2000 index fell under its 50-day moving average at 1,145 on Monday, and so far, has failed to regain that line. But MACD is very oversold and volume flowed to the small- and mid-cap stocks Thursday, giving them a boost that partially offsets the huge decline from their recently gained highs.

DJU Chart
Click to Enlarge

The Dow Jones Utility Average is populated with stocks that provide slower growth than the Dow industrials or the S&P 500, but they provide a measure of safety and higher yields. Thus, in times of uncertainty, the Dow utilities act like a bond substitute and reflect a retreat to safety. That move is clearly shown by the consistent near-term uptrend that began in early December.

Despite the rally in the broad market Thursday, the Dow utilities moved forward, closing at the high of the day. MACD is in bullish territory and moving up.

Conclusion: Despite Thursday’s broad advance, there is little to indicate that the rebound is anything more than what should be expected from an oversold market. Even though it appears that the S&P 500 has successfully tested the support at 1,775, it will not have erased the impact of the recent sell-off until it regains the ground north of its 50-day moving average at 1,813.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[5].

For a list of this week’s economic reports due out, click here[6].

  1. FB: http://studio-5.financialcontent.com/investplace/quote?Symbol=FB
  2. V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
  3. GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
  4. [Image]: https://investorplace.com/wp-content/uploads/2013/05/chart-key.gif
  5. click here: http://www.bloomberg.com/apps/ecal?c=US
  6. click here: http://www.bloomberg.com/markets/economic-calendar/

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