The Dow and S&P 500 rose to new record highs Friday following an interest rate cut by China and European Central Bank President Mario Draghi’s easy-money comments.
But early gains were shaved back as economists weighed in on China’s interest rate cut, which was the first in more than two years. They appeared to agree that this was a sign of economic weakness. Friday ended with a strong round of profit-taking despite the net gains of the major indices.
Stocks and bonds rose in Europe. The Stoxx Europe 600 was up 2.1%, and Italy’s 10-year yield hit a low of 2.2%.
The Chinese rate cut helped many hard commodities. Gold rose 0.6% to $1,197.50 an ounce. Crude oil was up 0.9% at $76.51 a barrel; however, its daily high was at $77.75, which illustrates the late profit-taking that hit virtually all markets.
Ross Stores, Inc. (ROST) rose 7.3% on an earnings beat. Gap Inc (GPS) fell 4.2% after cutting its annual guidance.
At Friday’s close, the Dow Jones Industrial Average gained 91 points at 17,810, the S&P 500 rose 11 points to 2,084, the Nasdaq was up 11 points at 4,713, and the Russell 2000 gained 2 points at 1,172.
The NYSE’s primary market traded just over 1 billion shares with total volume of 3.8 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 2-to-1, and on the Nasdaq, advancers were ahead by just 1.1-to-1.
For the week, the Dow gained 1%, the S&P 500 rose 1.2%, the Nasdaq was up 0.5%, and the Russell 2000 fell 0.1%.
Although the large-cap Dow and S&P 500 have done well in the past several weeks, the small-cap Russell 2000 has failed to keep pace.
While the iShares Russell 2000 Index ETF (IWM) has successfully maintained its initial support at its 200-day moving average at $114.12, it has failed to successfully attack its former highs at $121.
It recently topped twice at $118, and on Friday, shares closed very near their low of the day. Volume is declining, and MACD has slipped into the bear zone.
Since many of our readers have asked me to comment on gold, I’ve included the chart of the SPDR Gold Trust (GLD).
Note the undisturbed bear market with a high near the intermediate trendline and 50-day moving average at $116.07. There has been an increase in buyers and MACD is bullish. But until we see a close above $116.07, which is now an inflection point, I remain bearish on gold.
Conclusion
“Never sell a slow market.” Yes, I’ve said it many times, and admittedly, I missed the move of the past several weeks in the major indices. Nevertheless, in the Daily Market Outlook, I focus primarily on trading situations pertaining to mid- and small-cap stocks, and they have not performed well.
On Friday, even though the SPDR S&P MidCap 400 ETF (MDY) broke to a new intraday high, profit-taking resulted in a close near its low of the day and the important inflection point at $263 (see Nov. 20 Daily Market Outlook).
As I said, the small-cap IWM closed very near its intraday low of $116.16. A close above $121 (double-top) would reverse the overall sideways tape action to an uptrend. But until that occurs, I believe we should be very skeptical of what may be a classic bull trap.
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.
