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With S&P 500 Not Looking Strong, Seek Quality Stocks

While the downturn was short-lived, the S&P 500 isn't exactly roaring upwards

By Sam Collins, InvestorPlace Chief Technical Analyst


On Friday, U.S. stocks rallied following an upside reversal on Thursday that together almost overcame Wednesday’s 1.8% loss in the Dow Jones Industrial Average and the S&P 500. At Friday’s closing bell, both major indices ended the week with a modest loss of 0.4%.

On Friday, both the Dow Jones and the S&P 500 rose 0.7% while the Nasdaq and the Russell 2000 gained 0.5%. The climb back up was led by the industrials (+1.4%), energy (+1.2%) and financials (+0.8%).

Crude oil boosted an advance in the energy sector as WTI jumped 2% to $50.33 per barrel. The jump followed a statement by Russia and Saudi Arabia that there was a possibility of both extending the time frame of a cut in crude production but also increasing the size of the cut itself.

At the close, the Dow Jones Industrial Average gained 142 points at 20,805; the S&P 500 gained 16 points to close at 2,382; the Nasdaq closed at 6,084 for a gain of 29 points; and the Russell 2000 rose 6 points at 1,367. The NYSE’s primary exchange traded over 1 billion shares with total volume of 3.8 billion shares, and Nasdaq crossed 1.9 billion shares. On the Big Board, advancers led decliners by 3-to-1, and on the Nasdaq, advancers led by 1.8-to-1. Blocks on the NYSE fell to 7,598 from 8,345 on Thursday.

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With S&P 500 Not Looking Strong, Seek Quality Stocks

Stocks have become volatile following a period of lower-than-average volume for three months, and almost a record low reading on the VIX (Fear Index). Then on Wednesday that pattern was broken with a sell-off that broke the first levels of support of many of the “most-watched” indices. But on Thursday the indices reversed, led by the S&P 500’s positive intraday action. On Friday bargain-hunting continued, and the index closed above its 50-day moving average at 2,370. But volume on the S&P 500 is still relatively low compared to Wednesday’s high volume sell-off, and MACD hardly budged from Wednesday’s low reading.

Conclusion: Despite Thursday’s reversal and a modest follow-through on Friday, the pressure is still on the bulls to bring in buyers that will conclusively drive the major indices to new highs. Friday’s breadth, at a positive 3-to-1, is an acceptable indicator for the reversal of a minor breakdown, but a major break demands positive breadth of 5-to-1 or more to drive through to new highs.

Buyers should stick with high-quality stocks with relatively low volatility. My Trade of the Day, Wal-Mart Stores Inc (NYSE:WMT) is a big-cap, blue chip that almost demands attention from buyers, but only at the right price.

EDITOR’S NOTE: Our Chief Technical Analyst Sam Collins is retiring on June 1. Your Daily Trader’s Alert emails will continue uninterrupted, but will feature new analysts going forward. To learn more about the changes click here, and to join our “online going-away party” and wish Sam farewell click here.

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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Article printed from InvestorPlace Media, https://investorplace.com/2017/05/sp-500-seek-quality/.

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