On Monday, stocks rose but not quite enough for the S&P 500 to hit a new closing high, missing it by just over 3 points. The advance in U.S. markets was attributed to higher European and Chinese markets and a few better-than-expected domestic earnings reports.
Seven of the 10 S&P 500 sectors closed in the black with financial and utility stocks leading, up 1% and 0.7%, respectively. In third place was the health care sector, with Health Care SPDR (ETF) (NYSEARCA:XLV) up 0.6%. Two of the three leading groups — health care and utilities — are generally considered to be defensive, or countercyclical, in nature. The health care sector ended higher despite profit-taking in biotech stocks. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) was up 2% during the day but closed just 0.4% higher.
The technology group as a whole was up slightly with the Technology SPDR (ETF) (NYSEARCA:XLK) gaining 0.1%. Google Inc (NASDAQ:GOOGL) and International Business Machines Corp. (NYSE:IBM) advanced, but Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) lost ground.
Factory orders for March increased 2.1%, which met the Briefing.com consensus estimate. It was the only significant economic report of the day.
WTI oil fell 0.4% to $58.93 a barrel, in part as a result of a rising U.S. dollar, which was up 0.2% against a basket of currencies. Gold for June delivery rose 1.1% to settle at $1,186.80 an ounce.
At Monday’s closing bell, the Dow Jones Industrial Average rose 46 points to 18,070, the S&P 500 gained 6 points at 2,114, the Nasdaq rose 12 points to 5,017, and the Russell 2000 was up 5 points at 1,233.
The NYSE’s primary market traded 699 million shares with total volume of 3 billion. The Nasdaq crossed 1.6 billion shares. On both major exchanges, advancers led decliners by 1.4-to-1.
A triangle of the proportions seen on the S&P 500 usually leads to a breakdown, as pointed out by Jeffrey Saut of Raymond James. But it appears he also called it correctly when he said he thought that Thursday’s close below the 2,090-2,100 zone was a “false breakdown.”
Friday’s rebound and Monday’s follow-through is a positive reaction but far from proving that stocks will continue to advance.
Conclusion
A break above 2,120 on a high-volume close would be sufficient proof for me to be on the same track as Saut. But we have had many false breakouts and breakdowns, so I’m not willing to call a new near-term shift in direction yet. However, the target for a breakout is 2,140, while the targets for a breakdown would be the Fibonacci numbers of 2,033 (33.3% decline) and 1,990 (50% decline).
Until a firm direction is established, I think it wise to stick with what is working, and that is to only take new positions in the more defensive sectors of health care, utilities, big technology and telecommunications stocks (see 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.
