A rally in crude oil and energy stocks Wednesday drove the major averages up for the third consecutive day. The run on oil was the result of a potential agreement among OPEC producers to put a temporary cap on production.
The Dow Jones Industrial Average gained 1.6%, the S&P 500 rose 1.7% and the Nasdaq led, rallying 2.2%.
The Dow Jones Transportation Average has gained 6.4% in the past three trading days, but of the major indices, it has fallen the most from its high of last year.
Along with energy stocks, deeply oversold technology stocks became the object of buyers’ interest. Salesforce.com, inc. (CRM), Facebook Inc (FB) and Apple Inc. (AAPL) all showed big gains. But smaller-cap stocks like FireEye Inc (FEYE), Godaddy Inc (GDDY) and Hortonworks Inc (HDP) led the pack.
Crude oil jumped 5.6% to $30.66 a barrel after Iran’s oil minister said he supported the production freeze plan brokered by Saudi Arabia and Russia, although he did not say Iran would cap production.
Gold rose 0.3% to $1,211.10 an ounce. The yield on the 10-year Treasury note rose to 1.81% from 1.78% on Tuesday as bond prices fell.
At Wednesday’s close, the Dow Jones Industrial Average gained 257 points at 16,454, the S&P 500 added 31 points at 1,927, the Nasdaq jumped 98 points to 4,534 and the Russell 2000 was up 15 points at 1,011.
The NYSE Composite’s primary exchange traded 1.2 billion shares with total volume of 5 billion. The Nasdaq crossed 2.3 billion shares. On the Big Board, advancers outpaced decliners by 4.9-to-1, and on the Nasdaq, advancers led by 2.6-to-1. Blocks on the NYSE increased to 7,034 from 6,316 on Tuesday.
One of our readers noted that while I had made much of the decline in the Dow Jones Transportation Average on the way down, I said nothing about its recent strength.
In the Feb. 5 Daily Market Outlook, I reviewed the Dow transports’ “V” bottom saying, “The next target for the index is its 50-day moving average at 7,351.”
After hitting that target Wednesday, the index is overbought. However, momentum is high and it is likely to become more overbought as it reaches for the 50% Fibonacci retracement target at 7,455.
Conclusion
The same reader correctly noted that short interest is at an all-time high, and I would caution that the rally appears to be primarily the result of short covering. If so, the overall lack of volume is disturbing and means that the shorts are almost done buying.
But there are a number of bullish divergences, including a high level of investor fear and the increase in block trades on up days. I could go on and on, but these offsetting indicators only confirm my prediction of a wide-ranging, very volatile market that will likely be unchanged at year end.
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.
