After six consecutive days of heavy selling, the Dow Jones Industrial Average jumped over 600 points (nearly 4%) on Wednesday to score the biggest one-day advance in almost four years.
Investors’ anxiety eased despite continuing problems with the Chinese economy. The Shanghai Composite fell 1.3% overnight, but a “risk-on” attitude prevailed in the United States throughout the day as stocks rose and defensive investments fell. U.S. Treasuries and gold were weak from the opening to closing bell.
Wednesday’s rally appeared to be strongly influenced by a statement from Federal Reserve Bank of New York President William Dudley who said the case for a September rate hike has grown “less compelling.” Many investors had already put the thought of an increase next month behind them, but the statement from an official obviously had impact.
The technology sector led, up 5%. Health care also did well, up 4.3%, with iShares NASDAQ Biotechnology Index (ETF) (IBB) gaining 5.1%.
Durable goods orders increased 2% in July versus an expected decline of 0.6%. And the Mortgage Bankers Association reported weekly mortgage applications rose 0.2%, matching expectations.
At Wednesday’s close, the Dow Jones Industrial Average gained 619 points at 16,286, the S&P 500 jumped 73 points to 1,941, the Nasdaq was up 191 points at 4,698, and the Russell 2000 gained 28 points at 1,132.
The NYSE Composite’s primary market traded 1.3 billion shares with total volume of 5.3 billion shares. The Nasdaq crossed 2.6 billion shares. On the Big Board, advancers outpaced decliners by 3.9-to-1, and on the Nasdaq, advancers led by 3-to-1.
Wednesday’s 191-point jump in the Nasdaq Composite demonstrated the significance of October’s closing low at 4,215.32. So far, Tuesday’s closing low of 4,506.49 and Wednesday’s reversal (though not technically a reversal) are the first successful test of the October number.
The first resistance the Nasdaq will encounter is at its 200-day moving average at 4,912. Then the bands of resistance will exert their force at 5,025 and 5,165.
The chart of iShares Russell 2000 Index (ETF) (IWM) is similar to that of the Nasdaq, but there is one difference worth noting: The initial resistance to a further rally is immediately ahead of IWM, beginning at $114.
The first band of resistance is at $114 to $121 and was formed over an almost four-month period from October 2014 to February 2015, a significant period of time.
Conclusion
The most recent phase of the bull market has been led by small- and mid-cap stocks. Thus, it is probably beneficial to focus our immediate attention on those indices for clues as to the strength of the current rebound.
Even though volume was higher than normal for both indices, it did not exceed the high volume of selling since Friday. And positive breadth at about 3-to-1 failed to come close to Friday’s negative 9-to-1.
However, after a week of heavy liquidation and record volatility numbers, we will take what we can get and hope that the stirring is that of a renewed bull and not a dead cat bounce.
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.
