After days of selling, the banks rallied yesterday and led the Dow Jones Industrial Average (DJI) for the first gain in four sessions. The banks of the Dow 30 were all higher, with JPMorgan Chase (JPM) up 4.3% and Bank of America (BAC) up 4.7%.
The stock market has been down all week, in part because of the government’s restructuring of the financial industry. But Treasury Secretary Geithner’s presentation to Congress apparently eased some of the anxiety of traders, and resulted in at least a modest plunge into the financials by bargain hunters.
Healthcare stocks outperformed the broad market for the third straight day. Managed-care stocks gained 6.2%, and healthcare facilities gained 33.9%.
But retailers and semiconductors lagged the market. And trading volume was again close to the low of the year.
At the close, the Dow was up 58 points to 8,556, the S&P 500 (SPX) gained 8 points to 918, and Nasdaq (NASD) fell less than a point to 1,809.
The NYSE traded less than 1.1 billion shares, with advancers ahead of decliners by 4-to-3. On Nasdaq, 629 million shares traded, with advancers slightly ahead of decliners.
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July crude oil was up 34 cents to $71.37 a barrel, and the Energy Select Sector SPDR (XLE) fell 19 cents to $49.96.
Gold for August delivery fell $1.40, settling at $934.60 an ounce.
The PHLX Gold/Silver Index (XAU) lost $2.23 to close at $137.54. But the XAU is now very oversold and resting on its 50-day moving average. A bounce back to its 20-day moving average at $150 is likely. The major support for the XAU is at the support line and 200-day moving average at $120.
What the Markets Are Saying
Yesterday was the first plus day for the Dow this week.
After reversing down from the key number at 8,900 on Thursday, June 11, the Dow and the other broad indices have fallen, and, on Friday, June 12, flashed a sell signal from our own internal indicator, the Collins-Bollinger Reversal (CBR).
Even yesterday’s modest rally was halted at the 200-day moving average and was supported by one of the lowest-volume days this year.
But, after a week of declines, our internal indicators have turned from overbought to modestly oversold.
And this week’s American Association of Individual Investors (AAII) Sentiment Survey flipped to more bears than bulls, while other sentiment indicators are also looking more favorable.
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These indicators increase the chances that S&P 880 to 920 (Dow 8,200 to 8,600) may become strong support zones. If so, this summer’s trading might be contained within a very narrow range supported by a continuation of very low-volume days.
As was noted in this week’s ChangeWave Investing Update, “The runaway market needed a breather — and a basic correction is exactly what’s happening right now.”
The bull is not dead, just taking a well-deserved nap.
Today’s Trading Landscape
Earnings to be reported include: CarMax (KMX) and Focus Media Holding Ltd. (FMCN).
There are no economic reports due today.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.
