The Cat is Just as Dead as it Was on Friday

The recovery bounce may have come as a relief, but the technical picture has not changed

Stock buyers appeared focused on earnings Monday even though there were plenty of global events that could have diverted their attention.

In an effort to spur the slowing Chinese economy, the country’s central bank decreased the amount of cash banks must hold as reserves.

All 10 sectors of the S&P 500 registered gains with Technology SPDR (ETF) (NYSEARCA:XLK) leading, up 1.8%. Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB), Microsoft Corporation (NASDAQ:MSFT) and International Business Machines Corp. (NYSE:IBM) made big up moves. IBM stock jumped 3.4% in anticipation of its Q1 earnings report (see my Trade of the Day).

The lagging transportation sector staged a significant advance on Monday, with the Dow Jones Transportation Average rising 1.7%.

Oil prices were up 1.2% to $56.38 a barrel. Gold for June delivery fell 0.8% to $1,193.70 an ounce.

At Monday’s close, the Dow Jones Industrial Average gained 209 points at 18,035, the S&P 500 added 19 points at 2,100, the Nasdaq rose 63 points to 4,995, and the Russell 2000 was up 13 points at 1,265.

The NYSE’s primary market traded 989 million shares with total volume of 3 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 2.3-to-1, and on the Nasdaq, advancers led by 2-to-1.

Dow Jones Transportation Average Chart
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Chart Key

Although it was a relief to holders of transportation stocks to finally get a strong rally, the overall picture for the Dow Jones Transportation Average hasn’t changed.

Monday’s recovery bounce from its 200-day moving average at 8,692 merely ran to the top of a reverse flag, thus usually breaking through the bottom of its support line.

MACD did flash a short-term bullish signal, but I just can’t ignore the triple sell signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), that occurred in February and March.


The cat had a bounce, but in my opinion, it is as dead as it was on Friday’s close. Volume was high, and that is generally a favorable indicator. However, it was accompanied by very poor breadth at a mere 2-to-1 in favor of the advancers.

The maximum bounce for the S&P 500 is between 2,100 and 2,111. Use this recovery rally to lighten up on poor performers, stocks with high P/E ratios and ones in which you’ve made a good profit.

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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