Market Close to the Moment of Truth

On Thursday, higher energy prices, an easing of pressure on Greece from the ECB, and positive earnings boosted the major indices enough to reclaim January’s losses.

Stocks opened higher and held their gains through the day and even rallied slightly in the last 30 minutes. Small-cap stocks, as represented by the Russell 2000, jumped on the opening and rallied for the entire afternoon, closing up 1.3%.

Crude oil fell 8.7% on Wednesday, but recovered half of that plunge Thursday, rising 4.2% to close at $50.48 a barrel. This had a direct impact on the energy sector, which was up 1.4%. However, the leading sectors were materials (+2.4%) and health care (+1.7%).

E I Du Pont De Nemours And Co (NYSE:DD) was the top Dow performer, rising 3.1% on what investors considered positive additions to its board of directors and a rebuff of an activist investor.

The broad advance was assisted by better Q4 corporate earnings. FactSet reported that with 309 of the S&P 500 companies reporting, earnings are on pace to grow 3.5% over Q4 2013. Analysts had predicted a gain of just 1.1% over last year.

Thursday’s “risk-on” tape action had a negative impact on gold, down 0.3%, and Treasury bonds. The 10-year note’s yield rose to 1.82% from 1.80% on Wednesday.

At Thursday’s close, the Dow Jones Industrial Average gained 212 points at 17,885, the S&P 500 advanced 21 points at 2,063, the Nasdaq was up 48 points at 4,765, and the Russell 2000 jumped 17 points to 1,209.

S&P 500 Chart
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Chart Key

When reviewing the daily market action, the primary index to watch is the S&P 500. It is pushing against triple-top resistance at 2,064.

Following an all-time closing high made in December at 2,090.57, the index had a dramatic fall to a triple-bottom under 2,000. On its third test of its 200-day moving average it reversed, jumping in a straight line to Thursday’s close.

On Wednesday, it flashed a buy signal from the MACD indicator, and Thursday, it sliced through the important resistance of the 50-day moving average at 2,044.


Thursday’s rally was primarily the result of higher oil prices. Even though there is no technical importance to $50 oil, the psychological significance of this round number is very real. And in states like Texas and Oklahoma, it can mean the difference between work and layoffs for many roughnecks.

Unfortunately, Thursday’s attack on the S&P 500’s triple-top did not provide the ingredients normally expected from a pending breakout — namely high volume and breadth. With just 635 million shares traded on the NYSE, volume was below average. And although 3-to-1 advancers on the NYSE is marginal, 2.8-to-1 on the Nasdaq is not the stuff that qualifies for a breakout statistic in the stock hall of fame.

Another massive late-day sell-off, like the one seen on Wednesday, is still a possibility. We are close enough to the moment of truth to wait for a definite signal before making large commitments.

Patience, patience — so difficult and yet so potentially rewarding.

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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