Despite a drop in oil futures on Tuesday, energy stocks rose, propelling the Dow to a new record high. The S&P 500 gained, as well, taking back Monday’s decline and closing 0.4% off its all-time high.
However, small-cap stocks, represented by the Russell 2000, reclaimed only a portion of Monday’s decline and are still down 0.4% for the week.
Brent crude fell 2.8% to $70.54 a barrel, yet the Energy Select Sector SPDR ETF (XLE) rose 1.2%. This week’s rebound in the energy sector, which some attributed to short covering, followed an 8.7% decline in November. This led some analysts to conclude that the bounce was no more than might be expected and that the downtrend will likely resume later this month.
The names that rallied the most were said to be the ones that could withstand further declines in oil prices. Chevron Corporation (CVX), up 2.1%, and Exxon Mobil Corporation (XOM), up 2%, were among the biggest gainers. Royal Dutch Shell plc ADR (RDS.A) jumped 2.8% on reports that the company may be in talks to acquire BP plc ADR (BP), which rose 2.2%.
Biotech stocks also did well, with iShares NASDAQ Biotechnology Index ETF (IBB) up 2.1%.
Construction spending increased 1.1% in October, ahead of the 0.5% forecast by analysts.
At Tuesday’s close, the Dow Jones Industrial Average gained 103 points at 17,880, the S&P 500 rose 13 points to 2,067, the Nasdaq gained 28 points at 4,756, and the Russell 2000 was up 14 points at 1,168.
The NYSE’s primary market traded 813 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.8 billion shares. Advancers outpaced decliners by over 2-to-1 on both major exchanges.
While the big caps, as represented by the Dow and S&P 500, inch to new highs, the mid and small caps languish.
The SPDR S&P MidCap 400 ETF (MDY) illustrates the difficulties of these stocks. The index is on its third attempt to break through the congestion at $258 to $264 and is having difficulties.
MACD is on a short-term sell signal, volume is declining, and one more day down will trigger a death cross.
As for the small caps, illustrated by the iShares Russell 2000 Index ETF (IWM), a bearish horn has developed just under the resistance line at $120 that connects to the highs of March and July. Volume is declining, and MACD is flashing a short-term sell signal.
Conclusion
As one of our readers opined, “This is no time to be short the major indices.”
I would agree with his conclusion; however, the small and mid caps are another story. Until they are able to push into new high ground, their charts are telling us that sellers are overcoming almost every attempt at a rally.
I’ll be among the first to change my mind if a breakout occurs, but for now, it is best to refrain from investments in these indices and their components.
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.
