Stocks rallied Wednesday for the first time in six sessions. And for the first time this year, the major indices ended in the black. The Dow Jones Industrial Average and S&P 500 rose 1.2%, while the Nasdaq and Russell 2000 each added 1.3%.
The catalyst for the gains was a combination of short-covering, a gain in crude oil futures, up 1.5%, and a report from ADP showing that U.S. private payrolls increased by a greater-than-expected 241,000 in December.
The stock market’s advance was achieved despite minutes from the December FOMC meeting that listed global economic risk as significant to the growth of the U.S. economy. The Federal Reserve did say it anticipates foreign central banks will respond with appropriate stimulus. The board of governors also signaled that U.S. interest rates are likely to rise sometime this year, but they indicated that the hike will probably not take place before their April meeting.
The euro hit a nine-year low versus the U.S. dollar. Gold futures dropped 0.7% to $1,210.60 an ounce. The yield on the benchmark 10-year Treasury note fell to 1.95%.
J C Penney Company Inc (JCP) soared 20.3% on better-than-expected holiday sales. Monsanto Company (MON) rose 1.3% despite a disappointing outlook by management for its February quarter. However, the company did beat expectations for its November quarter.
At Wednesday’s close, the Dow Jones Industrial Average rose 213 points to 17,585, the S&P 500 gained 23 points at 2,026, the Nasdaq was up 58 points at 4,650, and the Russell 2000 jumped 15 points to 1,176.
The NYSE’s primary market traded 777 million shares with total volume of 3.8 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 3.2-to-1, and on the Nasdaq, advancers led by 2.1-to-1.
Even with big gains in the Dow and S&P 500, Volatility S&P 500 (VIX) declined just 8.6%. This indicates that the rally will likely be followed by more downside volatility on the S&P 500.
Despite the cheerleading from TV gurus, Wednesday’s rally was a relatively small bounce after five days of declines.
Volume on the SPDR S&P MidCap 400 ETF (MDY) was relatively low compared to the down days, MACD is in the bear zone, and the 50-day moving average at $259 was penetrated with hardly a whimper and now becomes resistance.
On the positive side, the trendline drawn from the October closing low has held. The next major support is at the 200-day moving average at $254. A Fibonacci retracement of the October-to-December advance targets $250 as an approximate downside target.
Conclusion
I’ve included just one index chart today since the others look remarkably similar to MDY’s chart. The resistance line at $263, its September high, must be overcome in order to bring the bulls back to pasture.
Wednesday’s rally, with relatively low volume and puny breadth, was not encouraging, leaving the near- and intermediate-term trends down but the bull still alive. An intraday target of $250 in MDY could be a reality check for many investors and form a bottom that would likely hold for much of the year.
For now, traders should sell into rallies unless MDY performs a miracle and breaks through what appears to be massive resistance.
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.
