Stocks rebounded Monday from Friday’s sharp sell-off as bargain hunters targeted higher-quality stocks. The Dow Jones Industrial Average gained 0.8%, while the S&P 500 advanced 0.4% and the Nasdaq rose 0.3%.
Friday’s decline resulted from an expectation that the Federal Reserve would raise interest rates sooner than previously expected as a result of better-than-expected jobs numbers. The unemployment rate, which fell to 5.5%, was especially troubling since it is within the Fed’s guidelines for a rate hike.
Three large-cap stocks led the advance: 3M Co (NYSE:MMM) was up 1.2%, Boeing Co (NYSE:BA) rose 1.1%, and Caterpillar Inc. (NYSE:CAT) gained 0.9%.
General Motors Company (NYSE:GM) and QUALCOMM, Inc. (NASDAQ:QCOM) announced major stock buyback programs. GM said it will repurchase $5 billion worth of shares, while QCOM said it will buy $15 billion of its stock.
Apple Inc. (NASDAQ:AAPL) stole the show on Monday, introducing its new smartwatch. The stock jumped as much as 2.4% intraday, but retreated to close up just 0.4%. (See the Trade of the Day for my buy under price in AAPL stock.)
Gold futures rose 0.2% to $1,166.40 an ounce. Oil gained 0.8% to $50 a barrel. The price of the 10-year Treasury note rose, driving its yield down to 2.20% from 2.24% on Friday.
At Monday’s close, the Dow Jones Industrial Average rose 139 points to 17,996, the S&P 500 gained 8 points at 2,079, the Nasdaq was up 15 points at 4,942, and the Russell 2000 climbed 6 points to 1,224.
The NYSE’s primary market traded 743 million shares with total volume of 3.3 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 1.1-to-1, and on the Nasdaq, advancers led by 1.2-to-1.
The NYSE Composite is composed of all stocks listed on the New York Stock Exchange, so it is a valuable tool when examining the technical nature of the market.
The index has been trading in a right triangle since October, which, at its mid-zone, is supported by the conjunction of the 200-day moving average at 10,830 and the 50-day moving average at 10,851.
February’s high has so far failed to gain momentum and could evolve into a false breakout, or “bull trap,” especially if the support line of the triangle fails to hold.
The chart of the Nasdaq Composite is very straightforward. Its recent decline from a new high has found support at the 20-day moving average at 4,920. However, this moving average seldom provides the strength necessary to hold back a rush of sellers.
The support line at 4,815 and the 50-day moving average at 4,788 are most likely the next targets for genuine support.
Conclusion
It is not yet clear whether the recent highs will turn out to be false breakouts or if the bulls will prevail and turn the market higher again. However, a break below the important support lines in the charts above indicates that there are not enough buyers to reverse the recent decline.
The MACD indicator on all major indices is bearish, and near-term patterns are weak. Therefore, it is recommended that traders sell into rallies and longer-term investors refrain from commitments until the current negative outlook is resolved.
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.
