Stocks moved ahead at a steady pace Thursday, but volume on the NYSE was the second-lowest for a full day this year. Health care stocks led for the third successive day, with utilities also showing gains.
Biotech stocks led the health care sector. The iShares Nasdaq Biotechnology (IBB) rose 1.6% on the day and is up 3.9% for the week.
With volume low, most analysts would expect volatility to increase. However, the CBOE Volatility Index (VIX) fell 3.7% to its lowest closing level since July 24. This indicates that major buyers are not hedging against a decline in prices over the near term.
And yet U.S. Treasuries rose to a near annual high, driving the 10-year yield to 2.4%, the lowest since June 2013, which could be the result of foreign buying in the face of uncertainties in the Middle East and Ukraine.
Jobless claims rose to 311,000 for the week ended Aug. 9 versus an expected 295,000.
Cisco Systems (CSCO) fell 2.6% due to slow order growth. And Wal-Mart (WMT) rose 0.5% after meeting earnings estimates but lowering its annual earnings guidance.
At the close, the Dow Jones Industrial Average rose 62 points to 16,714, the S&P 500 gained 8 points at 1,955, the Nasdaq was up 19 points to 4,453, and the Russell 2000 rose 2 points to 1,143. The NYSE traded total volume of just 2.6 billion shares, and the Nasdaq crossed 1.5 billion. On both major exchanges, advancers outpaced decliners by about 1.25-to-1.
Jeff Saut of Raymond James opined in this week’s “Morning Tack,” “The equity markets have struggled and have, as of this writing, been unable to climb above the SPX’s overhead resistance zone of 1940-1950.” His comment was made as he considered the idea “could it be that easy” — that every time the market corrected 5% to 7% institutions would buy — and most importantly, could it last?
I decided to test his statement, and above is a chart of every decline since April 2013. I found the statement is basically correct. The worst decline occurred in May/June of 2013 at 7.5%, and most declines were in the 4.5% range, with the current pullback registering a mere 4.4%. And near the bottom of each pullback, the S&P’s MACD indicator rendered a clear buy signal (red arrows). Furthermore, on Thursday, MACD gave us a new buy signal following an oversold condition that equaled that of February at the bottom of a 6.1% pullback.
Conclusion
The S&P 500 has penetrated overhead resistance at 1,940-1,950 by over 5 points with a fresh buy signal. And now with the MACD rendering a “buy” on the Nasdaq’s chart on Wednesday, there is no reason to hold back using some of our accumulated cash.
The only fly in the ointment is the Russell 2000. The index has failed to keep pace with the others. However, the Nasdaq’s charge, with a fresh MACD buy, is enough evidence that the move higher is not confined to the big caps.
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.
