Sell Into an Oversold Bounce

Stocks opened strong Tuesday, but falling energy prices and growing concern over diminished global growth resulted in small gains rather than an upside reversal.

Oil declined 3.3% to the lowest level since 2003, closing at $28.46 a barrel, while the global economic insecurity was caused by China’s GDP report. Data showed economic growth of 6.9% in 2015, the lowest in 25 years.

The Dow Jones Industrial Average rose 0.2% and the S&P 500 was up 0.1%, but the Nasdaq fell 0.3%.

Morgan Stanley (MS) jumped 1.1% after reporting a Q4 profit. Bank of America Corp (BAC) also booked a quarterly profit — the biggest in almost 10 years in fact — but shares fell 1.5% on paltry revenue growth. Banks stocks have been hit recently on worries about the impact of low oil prices and China’s woes.

Gold fell 0.2% to $1,089.10 an ounce as a result of a higher U.S. dollar and lower oil prices.

At Tuesday’s close, the Dow Jones Industrial Average rose 28 points to 16,016, the S&P 500 gained 1 point at 1,881, the Nasdaq fell 11 points to 4,477, and the Russell 2000 was down 13 points at 995.

The NYSE Composite’s primary exchange traded 4.8 billion shares and the Nasdaq crossed 2.4 billion. On the Big Board, decliners outpaced advancers by over 2-to-1, and on the Nasdaq decliners led by 1.9-to-1. Block trades on the NYSE fell to 6,546 from 7,124 on Friday.

S&P 500 Chart
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Dow Jones Industrial Average Chart
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Chart Key

The S&P 500 and Dow Jones Industrial Average have a lot in common:

— They are both struggling to maintain a key support line.

— Their charts show a death cross (50-day moving average crossed down through the 200-day).

–They are oversold on the reliable MACD indicator.

However, the Dow is the weaker of the two indices with more selling than buying.


Look for an oversold bounce, but remember that rallies in bear markets are designed to flush out short sellers who panic in a rush to buy back their borrowed shares.

The key number to watch — the Dow’s August closing low at 15,666 — still has not been demolished. I would be surprised to have it penetrated before an oversold rally takes place.

Sell into any rally and refrain from taking long-term positions in all but the most oversold sectors with stable dividends (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.

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