After a five-day losing streak, U.S. stocks rose on Friday with a broad-based rally that resulted in gains of 1.1% for the Dow industrials, 1.3% for the S&P 500 and 1.4% for the Nasdaq.
The advance was attributed to a rally in crude oil, which rose 5.3% to $48.69 a barrel, and unexpected increases in earnings.
The banking sector, however, continued lower with Goldman Sachs Group Inc (GS) falling 0.7% despite reporting slightly better-than-expected quarterly results. Technology stocks were soft, as well, with Apple Inc. (AAPL) falling 0.8%. But Intel Corporation (INTC) rose 0.7% after beating earnings estimates, and the PHLX Semiconductor (SOX) added 1.1%.
On Monday, when U.S. markets were closed in honor of Martin Luther King Jr. Day, Chinese stocks fell sharply on a regulatory crackdown and a “mountain of debt,” according to The Wall Street Journal. Bank of America Merrill Lynch said that margin trading in China is “among the highest in the world” and is up 9% so far this year. Chinese regulators suspended three big brokerage firms from opening new margin trading accounts for three months.
The problems were exacerbated by last week’s decision by the Swiss to allow their currency to rise against the euro. Most analysts expect the ECB to announce a QE-type plan this week. The euro fell to $1.146 on Friday, its lowest level since late 2003.
At Friday’s close, the Dow Jones Industrial Average was up 191 points to 17,512, the S&P 500 rose 27 points to 2,019, the Nasdaq jumped 64 points to 4,634, and the Russell 2000 was up 22 points at 1,177.
The NYSE’s primary market traded 975 million shares with total volume of 4 billion, and the Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 4.4-to-1, and on the Nasdaq, advancers were ahead by 3-to-1.
For the week, the Dow fell 1.3%, the S&P 500 lost 1.2%, the Nasdaq was down 1.5%, and the Russell 2000 slipped 0.8%.
Despite Tuesday’s outside reversal, the S&P 500 has held at the support line at 1,991, which, next to the index’s 200-day moving average, is the most important technical feature on the chart.
Resistance to rallies is at the confluence of the 20-day and 50-day moving averages at 2,046.
SPDR Gold Trust ETF (GLD) has broken its longstanding bearish resistance line as well as its 200-day moving average at $120.75. MACD is strong, and the breakout from a right triangle was followed by a breakaway gap through the big red moving average.
With chaos in Europe due to the Swiss franc’s revaluation, a large police/army presence in major cities protecting against another terrorist attack, a breakout in gold, the flight to U.S. Treasury bonds and the U.S. dollar, and a new debt crisis in China, there is uncertainty in almost every major global market.
I’ve perused the writings of technicians who I respect, and no one presents a rational reason to invest in U.S. stocks until the fog begins to clear. Perhaps that will happen this week as Mario Draghi and the ECB attempt to meet the challenges of Europe in crisis.
However, uncertainty is almost always the enemy of investors, and with this unprecedented combination of clashing political and economic forces, the only advice I can offer is to either stand aside or take a defensive investment strategy. Any other approach is pure folly.
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.