Use Pullbacks as Buying Opportunities

We could see a period of profit-taking, but support is close at hand

Stocks rose Thursday after the Bank of England said it might deploy further stimulus, and bank stocks shone following better-than-expected earnings.

Financials were the best-performing sector of the S&P 500, up 0.9%, and the KBW Nasdaq Bank Index, which tracks large commercial lenders, rose 1.7%. JPMorgan Chase & Co. (NYSE:JPM) led the big banks, up 1.5%, after reporting strong quarterly results. Wells Fargo & Co (NYSE:WFC) and Citigroup Inc (NYSE:C) gained 1.4% and 2.6%, respectively. Dow member Goldman Sachs Group Inc (NYSE:GS) was up 2.9%, and Metlife Inc (NYSE:MET) jumped 4.7%.

The Dow Jones Transportation Average rallied 1.1%, helped by advances in Delta Air Lines, Inc. (NYSE:DAL), up 3.6%, and CSX Corporation (NASDAQ:CSX), up 3%.

The technology sector also did well, up 0.7%, led by Apple Inc. (NASDAQ:AAPL), which gained 2%, and its supplier Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM), up 0.8%.

But while crude oil rebounded 2.1% to $45.68 a barrel, not all energy stocks followed suit. NRG Energy Inc (NYSE:NRG) fell 3.5%, Southwestern Energy Company (NYSE:SWN) lost 3.5% and Range Resources Corp. (NYSE:RRC) lost 2.4%.

The yield on the benchmark 10-year U.S. Treasury note rose to 1.53% from 1.48% on Wednesday. Gold fell 0.9% to $1,332.20 an ounce.

At Thursday’s close, the Dow Jones Industrial Average gained 134 points at 18,506, the S&P 500 advanced 11 points at 2,165, the Nasdaq was up 28 points at 5,034, and the Russell 2000 added 0.8% at 1,202.

The NYSE Composite’s primary exchange traded 837 million shares with total volume of 3.5 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, decliners outpaced advancers by 1.2-to-1, and on the Nasdaq, decliners led by 1.4-to-1. Block trades on the NYSE declined to 5,188 from 6,117 on Wednesday.

XLF Chart
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Chart Key

Financial stocks finally became part of the group rotation that started several weeks ago. However, Thursday’s breakaway gap in the Financial Select Sector SPDR Fund (NYSEARCA:XLF) faltered, as the ETF failed to successfully attack the May high at $23.93. It reversed in the afternoon and closed just 6 cents off its low of the day.

Volume was higher than normal but picked up on profit-taking in the afternoon. MACD is slightly overbought.


Thursday’s early rally was earnings-based, which was just what the doctor ordered. But as the day wore on, it became apparent that the market’s slightly overbought situation was taking a toll. Each of the major exchanges closed with more decliners than advancers.

From here, it’s likely we’ll see a period of profit-taking and then a run up of 5%-plus, that is if earnings support higher prices. Support is close at hand, so any pullback should be a good buying opportunity.

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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