On Wednesday stocks closed slightly lower as investors sold shares of grocery stocks and awaited a policy statement today from the European Central Bank (ECB). However, while the benchmark indices had a slight fall, small- and mid-cap stocks, represented by the Nasdaq and the Russell 2000, moved higher. Nasdaq gained for the third successive session, hitting another all-time closing high.
Although a decision to raise rates by the ECB is unlikely, chances are slim for a hike in rates by the Federal Reserve.
The dollar’s strength yesterday was coupled with gains in energy stocks. Refiners Phillips 66 (NYSE:PSX) and Valero Energy Corporation (NYSE:VLO) rose 0.6% and 1.5% respectively, and overall the sector rose 0.3% led by a 6.7% gain in Apache Corporation (NYSE:APA), due to a new oil field discovery in west Texas. WTI rose 1.5% at $45.50 per barrel.
The technology sector had a slight gain despite the introduction of Apple Inc.‘s (NASDAQ:AAPL) new iPhone 7. AAPL gained 0.6% and, as a Dow Jones component, stopped a deeper decline by the senior index.
The last two sessions have experienced a revival in biotechnology stocks, and yesterday the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) ended with an increase of 0.7%. Gilead Sciences, Inc. (NASDAQ:GILD), Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Progenics Pharmaceuticals, Inc. (NASDAQ:PGNX) all gained.
At the close, the Dow Jones Industrial Average fell 12 points at 18,526, the S&P 500 was unchanged at 2,186, the Nasdaq gained eight points, closing at 5,284, and the Russell 2000 closed at 1,261, up eight points. The NYSE’s primary exchange traded 802 million shares with total volume of 3.3 billion shares. Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq advancers led by 1.5-to-1. Block on the NYSE fell to 4,691 from 5,075 on Tuesday.
Two consecutive days of new highs with above-average volume, and an open field above yesterday’s close, should excite buyers. But even though yesterday’s volume was above average, it was anything but a “blowout.” Therefore expect higher prices from the small- and mid-cap stocks. First support is at the 20-day moving average at 5,236, but the significant support is down at 5,190.
Conclusion: At least one of our readers is pleased when “The soldiers are leading.” He means, of course, that the big-cap stocks (the generals) are lagging, and investors have enough confidence to put money to work in more speculative stocks.
I would disagree with the theory if volume was very high, as observed in most “bubbles.” But the markets are not in a bubble when day after day, volume is below normal (yesterday being a minor exception).
Additional studies indicate a further advance: First, the major indices (S&P 500, Dow Jones) have massive support under current prices. Thus any pullback is likely to be shallow and therefore a buying opportunity.
Second, regular sector shifts (rotation) has occurred — as pointed out by Raymond James Research, the first half of the year was dominated by high-dividend utilities and consumer staples. then “The great rotation” occurred when buyers shifted from the 50 best performing stocks to the 50 worst performers of the first six months.
Finally, the NYSE Bullish Percent Index remains strong, with about 80% of stocks indicating a buy on point-and-figure charts. About 80% of NYSE stocks are above their 200-day moving average.
There are a host of other strong indicators, but the most telling of all to me is the AAII survey numbers that show the public at a very high “Neutral” of almost 40%.
The bull is lonely — smart buyers will make a friend of him even at these prices. But timing is everything, so buy into any decline in solid investments like our 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.