AFTERNOON RALLY KEEPS SUPPORTS INTACT -- CRUDE OIL CLOSES OVER $40 -- BIOTECHS BOUNCE OFF 200-DAY AVERAGE -- TOBACCO TUMBLES

MAJOR AVERAGES CLOSE HIGHER ... Selling throughout most of the day had major stock indexes in danger of breaking key support levels near their 200-day moving averages. A late-day rally, however, prevented that from happening. By day's end the Dow was back above the 10K level and its 200-day average (Chart 1). Chart 2 shows the S&P 500 bouncing off its 200-day line at 1078. Although the Nasdaq Composite ended with a small loss, it did close back over its March low at 1900. News of a record trade deficit in March, another eight-month high in bond yields, and crude oil closing over $40 were all thrown at the market today. And although it bent a bit, it didn't break. The testing process continues.

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ENERGY STOCKS BOUNCE... There's been a disconnect between rising oil prices and falling energy shares over the past week. Crude closed 62 cents higher at $40.68. That upside breakout gave a boost to energy shares which started the week under pressure. The Energy Select Sector SPDR is trying to get back over its 50-day average and an overhead gap at 29.75. The Oil Service Index, which has been the weakest part of the oil patch, is bouncing off its 200-day moving average.

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BIOTECHS BOUNCE OFF 200-DAY LINE... It seems everywhere we look we see stock indexes testing 200-day lines. The Biotech Index scored an upside reversal today after touching its 200-day line. That, and a rebound in drug stocks, kept the AMEX Health Care Select Sector SPDR over its 50-day average. One group that didn't bounce was tobacco.

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TOBACCO TUMBLES... An unfavorable court ruling took a heavy toll on tobacco stocks today. Atria Group tumbled to a five month low (and its 200-day average) on massive volume. RJR fell to its 2004 low on rising volume as well. Not good action in either stock.

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