On Thursday, bargain hunters reversed Wednesday’s decline with a broad rally that focused on the sectors that were hardest hit the day before.
Financial and technology stocks made the biggest gains. And their reversals had a positive impact on the major indices: The Dow Jones Industrial Average and the S&P 500 rose 0.3% and 0.4% respectively; and the Nasdaq jumped 0.7%.
Even the lagging biotechnology group bounced: The iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) rose 1.3%.
Wal-Mart Stores Inc (NYSE:WMT) gave a boost to the Dow Jones by rising 3.2% after posting its 11th straight quarterly increase in same-store sales, according to the Wall Street Journal. And the shares of Apple Inc. (NASDAQ:AAPL) jumped 1.5%, which also benefited the Dow Jones’ result.
Economic results also helped the stock market. Data from the Labor Department indicated that first-time unemployment benefits fell last week. It was the third consecutive drop and a sign of continuing creation of new jobs.
Crude oil (WTI) futures rose 0.6% at $49.35 per barrel, settling at a three-week high.
At the close, the Dow Jones Industrial Average rose 56 points to close at 20,663, the S&P 500 gained 9 points at 2,366, the Nasdaq closed at 6,055 for a gain of 44 points, and the Russell 2000 added 5 points at 1,361. The NYSE’s primary exchange traded 1 billion shares with total volume of 4.2 billion shares, and the Nasdaq crossed over 2 billion shares. On the Big Board, advancers slightly outperformed decliners, but on the Nasdaq, advancers led by 1.4-to-1. Blocks on the NYSE increased to 8,345, up from 8,069 on Wednesday.
What appears to be a large bullish “W” formation failed to break out at the crucial 2,401 resistance line. Instead, on Wednesday, sellers hammered the S&P 500 into a failed breakout and a gap down from that line and even broke through the 50-day moving average at 2,369. Thursday’s attempt to recover the breakdown failed, despite a reversal (CBR Buy) from my internal indicator. Adding insult to injury, Wednesday’s sellers outnumbered Thursday’s buyers and the MACD indicator continued its negative reading.
Conclusion: We’ve been talking about an “overbought market” for weeks, anticipating a 5% to 10% correction. Perhaps the pullback will result in a full correction, and the NYSE’s puny positive breadth numbers would indicate that the decline will continue.
However, we should not “jump the gun,” anticipating a further decline, unless yesterday’s reversal is reversed. In the case of another reversal down, support rests at the bottom of the “W” at about 2,330. Beyond that, January’s high at 2,301 provides the next downside target.
The bulls, however, would find greener pastures with a close above the blue line at 2,369.
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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