Play It Safe for Now

Despite a steep global sell-off on Tuesday, U.S. stocks recovered from opening losses to close mixed. A sell-off in China and Greece took back gains in those countries made earlier in the year. Here in the States, the S&P 500 recovered from a 1.3% loss early in the day to close virtually unchanged.

The rush to buy was focused on sold-off energy stocks and small- and mid-cap technology stocks. The Nasdaq rose 0.5%, and the Russell 2000 gained 1.8%. Crude oil rose 1.2% to $63.82 a barrel, and the Energy Select Sector SPDR ETF (XLE) gained 1.1%.

Despite Tuesday’s recovery, there are worries that the Federal Reserve will move to tighten credit or raise interest rates. On Monday, The Wall Street Journal published an article that said “Federal Reserve officials are seriously considering an important shift in tone at their policy meeting next week.” This indicates the Fed is accelerating its thinking from a “considerable time” to mid-2015.

Bank of America Corp (BAC) fell 0.6%, and Citigroup Inc (C) was off 0.9% following management’s forecasts of lower Q4 revenues and a sizable legal expense.

At Tuesday’s close, the Dow Jones Industrial Average was off 51 points at 17,801, the S&P 500 fell less than a point to 2,060, the Nasdaq gained 26 points at 4,766, and the Russell 2000 was up 21 points at 1,188.

On the Big Board, advancers outpaced decliners by 1.5-to-1, and on the Nasdaq, advancers were ahead by 2.1-to-1. The NYSE’s primary market traded 834 million shares with total volume of 3.9 billion shares. The Nasdaq crossed 1.9 billion shares.

IWM Chart
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Chart Key

The iShares Russell 2000 Index ETF (IWM) is bounded by a line drawn from the September high of $117.80 and the November high of $118.78. Even the extraordinary rally from Tuesday’s low failed to penetrate that resistance line.

Volume was slightly higher, a favorable sign, and the index flashed a minor Collins-Bollinger Reversal (CBR) buy signal, which is also positive. MACD has a slight upward curl to it, but you have to look hard to see it.

Before jumping on the small caps, we must see a closing break of the high at $118.78.

MDY Chart
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The chart of SPDR S&P MidCap 400 ETF (MDY) is similar to that of IWM, but it has even tougher resistance. Its high is above its resistance line, now at $264. Volume was lower on the buy side than on the sell side.

MDY also flashed a minor CBR buy signal, but in a basically neutral setting with no increase in volume, that signal, like that of IWM, may not mean much.


As one CNBC pundit put it, “Forget a day like this, just too many crosscurrents to make a good decision.” I agree, especially on a day when, in addition to the international problems, the Dow Jones Transportation Average fell 0.6%.

If the small- and mid-cap indices break out, we will have plenty of time to jump on board. Until then, I’d rather play it safe.

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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