U.S. equities rebounded strongly on Monday as investors felt relief that the world did not, in fact, end in a nuclear holocaust, but the Dow Jones Industrial Average wasn’t able to climb back above the 22,000 mark. Trading was relatively light as news flow was dominated by the political blowback from a violent protect/counter-protest in Charlottesville over the weekend.
Click to Enlarge In the end, the Dow Jones gained 0.6%, the S&P 500 gained 1%, the Nasdaq Composite gained 1.3%, and the Russell 2000 gained 1.5%. Treasury bonds were weaker, the dollar rebounded, gold lost 0.3% and crude oil lost 2.5%.
Breadth was positive with advancers outpacing decliners by a 3.3-to-1 ratio with volume at 91% of the New York Stock Exchange’s 30-day average. The real estate sector led the way with a 1.7% gain, while energy was the laggard, down 0.3%.
Fiat Chrysler Automobiles NV (NYSE:FCAU) gained 8.5% after Automotive News reported the company has received an offer from a well-known Chinese automaker to buy it at a small premium over its market value, which was rejected my management. Nvidia Corporation (NASDAQ:NVDA) gained 8% after positive coverage in Barron’s on the opportunity from artificial intelligence. And VMware, Inc. (NYSE:VMW) gained 6.6% on a positive Q2 pre-announcement and raised forward guidance.
On the downside, Herbalife Ltd. (NYSE:HLF) lost 5.3% on reports of a crackdown of multi-level marketing firms in China.
On a technical basis, the most significant development of the past week has been the severe selloff in small-cap stocks.
The Russell 2000 has been pushed to a test of critical support at its 200-day moving average. Watch this level closely. A breakdown would set up a test of support at 1,350, representing the lower end of the index’s nine-month trading range.
Also, it’s interesting to note that it’s not only U.S. markets that are feeling the pressure and falling through psychologically critical levels. Japan’s Nikkei Average has fallen back through the 20,000 level that has frustrated the bulls since early 2015.
With fears over North Korea remaining at a low simmer, watch for selling pressure to intensify on any increase in hostility.
With President Donald Trump’s decision late Monday to tighten trade policy against China — directing officials to look into allegations of Chinese intellectual property theft — it’ll be interesting to see how Beijing responds. Many see this as an overt expression of dissatisfaction with China’s ability to get Pyongyang to back down.
Check out Serge Berger’s Trade of the Day for Aug. 15.
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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