A rally in banking and commodity-related stocks resulted in a gain after five days of losses. But despite Friday’s 2% pop in the Dow Jones Industrial Average, the week ended with a 1.4% loss in the index.
On the surface, a 2% gain in the Dow Jones Industrial Average sounds impressive, but The Wall Street Journal reported that positive sentiment was lacking among floor traders. Some pointed to the relatively low volume and others to the lack of breadth. But volume is typically low prior to a three-day weekend; however, that doesn’t address Thursday’s rush to buy gold and other defensive investments. And volume on Thursday was the second highest of the year.
According to FactSet, about three-quarters of companies in the S&P 500 have reported earnings, and many have exceeded reduced expectations. But the market has been more focused on the price of crude oil, which got a boost late Thursday and Friday. This was sparked by the U.A.E. energy minister, who said OPEC is ready to cooperate on production cuts.
The hard-hit financial sector was Friday’s best performer, up 4.2%. JPMorgan Chase & Co. (JPM) jumped 8.3% on news Chairman and Chief Executive Jamie Dimon purchased 500,000 shares of the stock.
Gold was up about 7% last week at $1,239.40 an ounce, its highest level in almost a year. Gold is 18% higher year to date.
The benchmark 10-year Treasury note hit a three-year high on Thursday, with its yield falling to 1.63%. Bond prices fell on Friday with the 10-year yield jumping to 1.74%.
At Friday’s close, the Dow Jones Industrial Average rose 314 points to 15,974, the S&P 500 gained 36 points at 1,865, the Nasdaq jumped 71 points to 4,338 and the Russell 2000 was up 18 points at 972.
The NYSE Composite’s primary exchange traded 1.2 billion shares with total volume of 4.6 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 3.8-to-1, and on the Nasdaq, advancers led by 3-to-1. Block trades on the NYSE declined to 6,583 from 7,445 on Thursday.
For the week, the Dow Jones Industrial Average fell 1.4%, the S&P 500 was down 0.8%, the Nasdaq lost 0.6%, and the Russell 2000 dropped 1.4%.
On the one-minute chart of the S&P 500, we see buyers showing up on the close, which has become a pattern. But buyers have not achieved a punch through the shallow resistance line at about 1,864.
The daily chart shows MACD is on a sell signal. The next support line is at 1,862, and to find it we must go back to October 2014.
Like the S&P 500, the Dow Jones Industrial Average attempted a last-minute stand, and it did manage to close on the high of the day. However, volume was light and MACD is on a sell signal.
Conclusion
The damage that has been inflicted on the major indices is significant, and attempts at rallies are coming too late in the day to overcome the sellers.
All eyes appear to be on OPEC and its impact on oil prices. Friday’s reaction to potential production cuts demonstrated that equity buyers are more interested in the price of oil than any stock on the S&P 500.
We are, however, due for an oversold rebound. If we get one, sell into it. My outlook is for a near-term bounce followed by a test of the recent lows. If stocks can survive a downside test following an oversold rally, my prediction of a sideways market bounded by 1,865 to 2,080 on the S&P 500 would be significantly enhanced.
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.
