The bulls cooled their heels on Thursday, resting after a historic three-day rally. News flow was quiet and volatility was low.
In the end, the Dow Jones Industrial Average lost 0.3%, the S&P 500 lost 0.5%, the Nasdaq Composite lost 1% and the Russell 2000 ended the day 0.6% lower.
Treasury bonds were stronger, the dollar moved up, gold gained 2.1% and oil lost 0.9% to close at $30.39 a barrel. Defensive utility stocks led the way higher with a 1.6% gain while energy names were the laggards, down 0.9%. Breadth was positive, with advancers outpacing decliners 1.1 to 1 on the NYSE.
Crude oil initially opened stronger on lingering hopes of a OPEC production cut deal as well as the overnight API report showing a 3.3-million-barrel inventory draw vs. the consensus estimate for a 3.9-million-barrel build.
A late morning EIA report showing a 2.1 million inventory build reversed the momentum, however. Headlines in the French press that Saudi Arabia wasn’t interested in cutting production — but remains open to freezing production near current levels — didn’t help either.
Wal-Mart Stores, Inc. (NYSE:WMT) lost 3% after reporting a Q4 earnings beat after U.S. comp-store sales growth missed both guidance and the consensus estimate. Forward guidance was also light. Jack in the Box Inc. (NASDAQ:JACK) was slammed 16.2% after fiscal Q1 earnings missed with comp-store sales growth of 1.4% below the 2.8% analysts are looking for.
On the upside, gold stocks like Barrick Gold Corporation (USA) (NYSE:ABX) continued their recent strength with shares adding 6.2%. The company reported a Q4 earnings beat and issued forward guidance featuring positive commentary on cost guidance and balance sheet deleveraging. That pushed shares to a total gain of nearly 70% for Edge subscribers since ABX was first recommended back on Nov. 19.
The surge in gold futures lifted the Feb $105 calls in the SPDR Gold Trust ETF (NYSEARCA:GLD) to a gain of 484% for Edge Pro subscribers when the position was closed on Wednesday.
On the economic front, further evidence of job market strength dimmed hopes slightly of the year-long postponement of any further Federal Reserve interest rate hikes the futures market is currently pricing in. Initial weekly jobless claims fell to 262 thousand from 269 thousand last week and below the 275 thousand analysts were expecting.
San Francisco Fed President John Williams noted that the upward pressure on wages in stronger than what’s being reported and that the outlook for the U.S. economy is good. He said he is looking for the unemployment rate to hit 4.5% by the end of the year and inflation to return to their 2% target in two years.
With internal market strength continuing to improve — shaking off the deep oversold condition reached last week — we should see some extension over resistance at Dow 16,500 from the late January high setting up a challenge of the 17,000 level.
Breadth, as measured by the percentage of NYSE stocks above their 50-day moving average, is breaking up and out of a persistent downtrend that started in early November.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
