Market Is Likely to Hold, but at What Level?

U.S. stocks fell Thursday on concerns over Portuguese banks and China’s lagging exports. Stocks opened lower after one of Portugal’s biggest banks missed a debt payment, but the market quickly rebounded as bargain hunters swooped in.

Buying was confined to higher-quality mid- and large-cap stocks. The small-cap Russell 2000 was the weakest of the major indices, down 1%, while the S&P 500 closed only 0.4% lower after being down 1% shortly after the opening. Utilities and other defensive stocks gained.

In stock news, Costco Wholesale (COST) rose 0.1% after announcing June sales topped estimates. Lumber Liquidators (LL) fell 22% on lowered guidance for Q2. And Family Dollar Stores (FDO) dropped 0.2% when quarterly profits failed to meet expectations.

Initial jobless claims fell to 304,000, below estimates for 311,000. Wholesale inventories increased 0.5% in May, meeting expectations.

August gold futures settled at $1,339.20, up 1.1%. Crude oil rose 0.7% to $102.92 a barrel.

At Thursday’s close, the Dow Jones Industrial Average was off 71 points at 16,915, the S&P 5000 fell 8 points to 1,965, the Nasdaq lost 23 points at 4,396, and the Russell 2000 fell 12 points to 1,162. The NYSE’s primary market traded 654 million shares with total volume of 3.1 billion shares. The Nasdaq crossed 1.7 billion shares. Decliners outpaced advancers on the Big Board by 2.2-to-1, and on the Nasdaq, decliners were ahead by 3-to-1.

SPX Chart
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Chart Key

The S&P 500, rebounded nicely from the early sell-off. It held above its 20-day moving average at 1,959 and the top of a major support zone at 1,925-1,950. But MACD is in a bearish zone, and the index is subject to a Fibonacci retracement of 50%, which would take it to its 50-day moving average at 1,925.

RUT Chart
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Unlike the S&P 500, the Russell broke its near-term trendline and 20-day moving average. However, it did find support at the important 50-day moving average. Like the S&P 500, its MACD is in the bear zone.

Conclusion: Thursday’s rebound from the early lows is encouraging. The major indices reversed from the most important support lines and closed in the upper half of the day’s range. Buyers again jumped on bargains, and that’s a strong indication that further weakness will probably be held — but at what level?

A full 50% Fibonacci retracement of the May low to the July high is still a strong possibility. Thus, we remain cautious but on the alert for deep bargains.

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.

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