U.S. equities continued the low-volume, short-covering, dead-cat bounce on Wednesday as investors responded to stability in the currency market on hopes and rumors of coordinated central bank intervention.
Breadth remains tepid. And a lack of volume suggests this is a whipsaw move before the medium-term downtrend reasserts itself. But for now, risk assets are melting higher.
In the end, the Dow Jones Industrial Average gained 1.6%, the S&P 500 Index gained 1.7%, the Nasdaq Composite gained 1.9% and the Russell 2000 gained 2.2%. Treasury bonds weakened into the close, with the 10-year yield pushing above 1.5%. Elsewhere: The dollar was down against the sterling and euro; gold rose 0.7%; crude oil gained 4.2% on inventory data.
Financial and energy stocks led the way with gains of 2.3% and 2%, respectively. Oil services names were a bright spot. Nike Inc (NYSE:NKE) surged 3.8%, capping a 6.3% two-day gain, despite reporting disappointing results as investors focused on the company’s long-term potential. Alcoa Inc (NYSE:AA) fell 2.5% on the release of detailed plans on its upcoming corporate split.
On the economic front, pending home sales fell 3.7% in May over April, the worst showing since early 2015.
Stepping back, it’s important to remember that the more central bankers and their Wall Street allies engineer a quick market recovery, the more it will embolden pro-independence movements in places like France, Italy and Portugal. And with a three-day holiday weekend coming up, and the start of the second-quarter earnings season just a couple of weeks away (on track for the fifth consecutive quarterly decline in profits), I expect the selling to reappear later this week.
Technically, the Dow Jones Industrial Average is about to hit resistance from its 50-day moving average just below 17,800 as short-term moving averages move below intermediate-term averages for the first time since May.
The downtrend, for now, remains confirmed despite what’s been the nastiest short squeeze since 2011 over the last two days.
One clear sign that all is not well was the 2.7% surge in the iShares Silver Trust (ETF) (NYSEARCA:SLV) to new post-Brexit highs as investors continue to worry about market and foreign exchange turbulence, as well as the likelihood of ever-increasing monetary policy aggressiveness.
The rise boosted the July $17 SLV calls recommended to Edge Pro subscribers to a near 50% gain.
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.
