Stocks closed slightly higher on Tuesday after a highly volatile session during which all major indices except the small-cap Russell 2000 ended slightly in the black.
The positive close was apparently the result of hopes that the European Central Bank (ECB) meeting later this week will produce a large-scale bond-buying plan. If the QE program is big enough and has the support of all of its members, the expectation is that it could lead to a stronger European economy and even a slight increase in inflation. However, if the central bank falters in its resolve, the outcome could be a period of extended deflation.
Defensive sectors performed best again, with the biotechnology group leading the overall market gains. The iShares NASDAQ Biotechnology Index ETF (IBB) gained 1.7%, closing at a new high.
Apple Inc. (AAPL) rose 2.6%, and Netflix, Inc. (NFLX) jumped 3.4% prior to its quarterly earnings report, which was released after the close. The stock continued to rise in after-hours trading following news of strong subscriber growth. The streaming video company added 4.3 million subscribers in Q4, which beat estimates of 4 million.
Crude oil futures for February fell 4.7% to $46.39 a barrel, and gold rose 1.4% to $1,294.20 an ounce. The yield on the benchmark 10-year Treasury note closed at 1.81% versus Friday’s close of 1.82%.
The Dow Jones Industrial Average gained 4 points at 17,515, the S&P 500 rose 3 points to 2,023, the Nasdaq gained 20 points at 4,655, and the Russell 2000 fell 6 points to 1,170.
The NYSE’s primary exchange traded 859 million shares with total volume of 3.9 billion, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.6-to-1, and on the Nasdaq, decliners were ahead by 1.5-to-1.
The Russell 2000 is currently bounded by its 50-day moving average at 1,179 and the important 200-day moving average at 1,150. The overall chart, with an ominous triple-top pattern, is weak. Internal indicators are weak, as well. This is not a pattern that we like to see from an aggressive index.
In contrast to the Russell 2000, the pattern on the chart of the Dow Jones Utility Average is strong. Investors continue to flock to dividend-paying stocks and the defensive nature of utilities.
The Dow Jones Utility Average was the best performer last year and is off to a strong start in January. Immediate support is at its 20-day moving average at 626, with more significant support at 609, its 50-day moving average.
Conclusion
This week, there appears to be little reason either technically or politically to take a firm stand in common stocks. The stark difference in the Russell 2000 and Dow Jones Utility Average should be enough to make an investor pause.
With the State of the Union speech and a major decision from the ECB pending, many investors are moving to the safety of utility stocks and bonds, even with the lowest rates in memory.
Until the smoke clears we should be doing the same. That is, unless you are a trader with a strong stomach and an aggressive outlook. If so, you might consider a short sale on a big bank like I recommended in the Trade of the Day.
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.
