Stocks enjoyed a second consecutive day of gains Wednesday following a five-day losing streak. The advance apparently came as a result of a 3.5% recovery on China’s Shanghai Composite index rather than from any expected Federal Reserve announcement on interest rates.
The Fed left interest rates unchanged at the conclusion of its policy meeting. In a statement following the meeting, the central bank said inflation was still not as high as the governors would like, but the U.S. labor market is making progress. Despite the lack of clarification on the issue, analysts concluded the Fed is on course to raise rates before the end of this year.
Gilead Sciences, Inc. (GILD) reported better-than-expected quarterly earnings, and the stock jumped 2.3%. However, it didn’t have much impact on the iShares NASDAQ Biotechnology Index (ETF) (IBB), which lost 1.4%.
The technology sector rose 0.7% despite a slow start, and the industrial sector spiked 1.2%. The Dow Jones Transportation Average gained 1.7%; however, for the week, the index is up 4.3%.
Europe’s bourses also gained on the relief rally in China. The Stoxx Europe 600 closed 1% higher.
Energy stocks rallied 1.4% after a string of losses. Anadarko Petroleum Corporation (APC) popped 4.7% after beating earnings expectations. Crude oil futures rose 1.7% to $48.79 a barrel.
Gold futures lost 0.3% at $1,092.79 an ounce. And the benchmark 10-year note fell in price, driving its yield to 2.28% versus 2.25% on Tuesday.
At Wednesday’s close, the Dow Jones Industrial Average gained 121 points at 17,751, the S&P 500 rose 15 points at 2,109, the Nasdaq jumped 23 points to 5,112, and the Russell 2000 was up 5 points at 1,230.
The NYSE’s primary floor traded over 850 million shares with total volume of 4 billion. The Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 2.6-to-1, and on the Nasdaq, advancers led 1.3-to-1.
Tuesday’s recovery in the Russell 2000, as illustrated by iShares Russell 2000 Index (ETF) (IWM), shows a higher-than-average volume jump that regained the support line at $121.04 and the 200-day moving average at $120.80.
The next target for a full recovery is the 50-day moving average, now at $125.01, and the downward resistance line at about the same level. But note Wednesday’s lower-than-average volume, a slight negative.
The overall background of the SPDR S&P MidCap 400 ETF (MDY) is weaker than IWM. The failure in mid-July at the crucial 50-day moving average and the bearish resistance line are a negative, as is Wednesday’s lower-than-average volume.
The Volatility S&P 500 (VIX) is indicating little in the way of fear. In fact, at a close of 12.50, it is just above the low of the year that led to the recent sell-off.
Conclusion
The Russell 2000’s recovery with a bullish hammer on strong volume is an indication of a short-term rally. However, the failure of MDY and the lower VIX reading are not good.
The ability to keep upside momentum will be an indication as to whether the two-day rally has room to run or if it is just another short-term pop in an intermediate correction.
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.
