Rally Looks Destined to Fail

Stocks rallied after the release of the minutes of the FOMC’s latest policy meeting on the expectation that short-term interest rates would be raised in December. If the Fed follows through it will be the first rate hike in almost a decade and could start a run of slight periodic increases through 2016.

Financial stocks were sharply higher with the Select Sector Financial Slct Str SPDR Fd (XLF) up 1.8% and SPDR KBW Bank (ETF) (KBE) jumping 1.7%.

JPMorgan Chase & Co. (JPM) rose 2%, Goldman Sachs Group Inc (GS) gained 1.7%, Bank of America Corp (BAC) jumped 2.4% and Citigroup Inc (C) advanced 1.8% as institutional investors went for the big banks. But for reasons I outlined in the Trade of the Day, I like the SPDR KBW Regional Banking (ETF) (KRE), which rose 1.4%, better.

All 10 sectors of the S&P 500 gained with all but utilities up more than 1%. The energy sector rose 1.7% as oil advanced 0.2% to $40.75 a barrel.

Norfolk Southern Corp. (NSC) soared 6.4% and Canadian Pacific Railway Limited (USA) (CP) was up 5.8%. The latter submitted a proposal Tuesday to combine the two rival rail networks.

Apple Inc. (AAPL) was up 3.2% following an upgrade by Goldman Sachs, which added the stock to its conviction buy list.

October housing starts declined 11% to an adjusted annual rate of 1.060 million units versus a consensus estimate of 1.173 million.

On Wednesday’s close, the Dow Jones Industrial Average rose 248 points to 17,737, the S&P 500 gained 33 points at 2,084, the Nasdaq jumped 89 points to 5,075, and the Russell 2000 was up 19 points at 1,172.

The NYSE Composite’s primary exchange traded 909 million shares with total volume of 3.9 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 3.3-to-1, and on the Nasdaq, advancers led by 2.1-to-1. Block trades declined to 5,412 from 5,683 on Tuesday.

S&P 500 Chart
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Chart Key

The S&P 500 jumped on low volume, closing above its 200-day moving average and the inflection point (line) at 2,080. The run up of the past three days was preceded by a buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR). But that signal was triggered by a higher-than-average volume day, while Wednesday’s volume was barely at a normal level.

Dow Jones Industrial Average Chart
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Like the S&P 500, the big-cap Dow Jones Industrial Average broke above its 200-day moving average, but the volume was well below average and MACD appears to be merely recovering from an oversold condition.

Conclusion

Low volume, massive overhead, lower block trades and a knee-jerk reaction to the Fed’s hint of a rate increase seem like an odd way to begin a new leg up on a bull market.

Unless the institutional boys can garner more buyers, this pop still appears destined to fail. A high-volume close above 18,000 on the Dow would be more persuasive than Wednesday’s mere rousing of a limp dead cat.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2015/11/daily-market-outlook-rally-looks-destined-to-fail/.

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