Investors Flip to Risk-On Approach

After heading for safety a day prior, buyers turned their attention to riskier assets

Investors flipped from a decidedly risk-off stance on Tuesday to a risk-on posture on Wednesday, reversing and rallying from a weak opening.

Buyers focused on some of the hardest-hit sectors of recent weeks, with health care (1.2%), consumer discretionary (0.9%) and technology (0.7%) leading. And money shifted out of defensive sectors like utilities and telecommunications, which are generally considered “bond substitutes.”

While Wednesday’s action appeared to be centered on group rotation of the big caps, no breakouts occurred and the major indices closed with minor gains.

The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB), which came within a fraction of making a new 52-week low on June 27, is up almost 11% since then. It rallied 2.4% on Wednesday, helped by a 4.3% gain in Celgene Corporation (NASDAQ:CELG) and a 15.6% jump in Valeant Pharmaceuticals Intl Inc (NYSE:VRX).

The Institute for Supply Management’s nonmanufacturing purchasing managers index rose from 52.9 in May to 56.5 in June — its highest level since November. A reading above 50 is indicative of an expansion.

The U.S. dollar was down against the euro and yen. Crude oil was up 1.8% to $47.43 a barrel, and gold added 0.6% at $1,364.90 an ounce.

At Wednesday’s close, the Dow Jones Industrial Average gained 78 points at 17,919, the S&P 500 added 11 points at 2,100, the Nasdaq rose 36 points to 4,859, and the Russell 2000 advanced 8 points to 1,147.

The NYSE Composite’s primary exchange traded 1 billion shares and the Nasdaq crossed 1.8 billion. On the Big Board, advancers outpaced decliners by 1.8-to-1, and on the Nasdaq, advancers led by 1.6-to-1. Block trades on the NYSE fell to 5,160 from 5,367 on Tuesday.

MDY Chart
Click to Enlarge

Chart Key

The chart of SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) shows how restricted the trading ranges are. MDY’s first range is from support at the 50-day moving average at $268.59 to the resistance line at $271. The larger range is from resistance at $273 to support at $265.


Wednesday’s tape action was positive in that buyers went for sold-off sectors while selling more defensive assets like utilities and other bond substitutes.

This market is a delight for day traders but frustrating for longer-term traders and investors. Advances tend to die quickly and then revive, but the net of it all is just a big, fat goose egg.

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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