Is This Technical Highlight the First Sign of a Recovery?

by Sam Collins | February 7, 2014 2:20 am

Stocks rebounded on Thursday for the biggest gain of the year following the penetration of key technical support zones. The gains were helped by optimistic projections for today’s jobs report.

Consumer discretionary stocks led the rally. Dow component Disney (DIS[1]) was up 5.3% following a better-than-expected earnings report. Coca-Cola (KO[2]) rose after announcing it would buy a 10% position in Green Mountain Coffee Roasters (GMCR[3]), and O’Reilly Automotive (ORLY[4]) jumped over 9% after beating on the top and bottom line and reporting higher same-store sales.

But Pandora Media (P[5]) fell more than 10% following better-than-expected earnings but a negative outlook for the current quarter. And Twitter (TWTR[6]) sank 24% after lower-than-expected user activity overshadowed its first quarterly report, which was better than expected.

At the close, the Dow Jones Industrial Average was up 188 points at 15,629, the S&P 500 rose 22 points to 1,773, and the Nasdaq jumped 46 points to 4,057. The NYSE traded a total of 3.8 billion shares, and the Nasdaq crossed 1.9 billion. Advancers led decliners on the Big Board by over 3-to-1, and on the Nasdaq, advancers were ahead by 1.9-to-1.

Dow Chart
Click to Enlarge

Chart Key[7]

Although the Dow’s chart is the weakest of the major indices, it managed to close above its 200-day moving average (MA) at 15,483 on Thursday. And its internal indicator, the MACD, appears to be hooking up — a favorable sign.

However, the recent breakdown did much technical damage as prices ploughed through support at 16,120 and 15,720 while piercing the 50-day and 200-day moving averages.

Note the break of its 20-day MA through its 50-day MA. Coupled with the trend break of its intermediate trendline, the Dow has a lot of work to do before the trend reverses up.

SPX Chart
Click to Enlarge

Although the S&P 500’s chart isn’t quite as grim as the Dow’s, it too has some serious work to accomplish before it is out of the woods. Like the Dow, its 20-day moving average crossed through the 50-day MA, and support was violated at the 1,775 line. It did, however, fall short of violating its 200-day moving average, and its MACD is also hooking up.

Conclusion: The Dow’s close above its 200-day moving average is the technical highlight of the day since it could be the first sign of a recovery. However, upside volume is only a fraction of the prior downside volume, and upside breadth is anemic compared to the prior imbalance toward the sell side.

Today’s U.S. jobs report is expected to be positive, and if it lives up to expectations, then the S&P 500 could close above 1,775 and begin to form a bullish platform. But Thursday’s rally felt more like short-covering than bargain hunting, and if that assessment is accurate, the jobs number had better be very strong. Hold onto your hat (or your parachute) if not.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[8].

For a list of this week’s economic reports due out, click here[9].

  1. DIS:
  2. KO:
  3. GMCR:
  4. ORLY:
  5. P:
  6. TWTR:
  7. [Image]:
  8. click here:
  9. click here:

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