200-DAY MOVING AVERAGES HOLD -- MARKET SCORES UPSIDE REVERSAL ON BIG VOLUME -- DROP IN RATES AND OIL ALSO HELP
FED MINUTES PUSH BOND YIELDS LOWER... The Fed minutes from its last meeting calmed the financial markets and led to an impressive rebound in the stock market. Two of the intermarket factors that turned the market around in the afternoon were a drop in bond yields and crude oil. Chart 1 shows the 10-year T Note Yield falling all the way to 4.36%, which is the lowest in reading in more than a month. The drop also puts the TNX all the way back to its 50-day moving average. That gave an especially big boost to rate-sensitive stocks like financials which spearheaded the late market turnaround. At the same time, energy stocks were the day's biggest losers. That was the result of a drop in crude oil below $52 for the first time in six weeks. Those two factors -- combined with the fact that some major stock indexes were testing major chart support -- turned an early loss into a late gain. Volume also picked up impressively. All in all, a very good market day -- and just in the nick of time.
Chart 1
DOW BOUNCES OFF 200-DAY AVERAGE -- RUSSELL RECOVERS JANUARY LOW... Two of the market indexes that were in the most danger this morning were the Dow Industrials and the Russell 2000 Small Cap Index. Charts 2 and 3 show why. The Dow touched its 200-day average and was threatening its January low. At the same time, the Russell 2000 had fallen under its January low. The afternoon rally, however, erased those losses and more. The upside turnaround started right after the Fed minutes were releases at 2:00 pm. That's also when most of the day's volume appeared to push the market higher. By day's end, the Russell had regained its January low and also stayed safely over its 200-day moving average. Several rate sensitive groups also bounced off their 200-day moving averages.
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RATE-SENSITIVE WINNERS ... Stocks sensitive to the direction of interest rates have been among the year's worst performers. That's why today's turnaround in several of them at their 200-day moving averages was especially noteworthy. The Consumer Discretionary SPDR (XLY), Retail Holders (RTH), and Real Estate iShares (IYR) all scored upside reversal days at their 200-day lines. All three rose on strong volume which is a necessary ingredient in an upside reversal day. Upside volume in the XLY was especially noteworthy. They still have to clear their 50-day averages to turn their short-terms higher. But today's technical action was impressive.
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NASDAQ INDEXES CLIMB BACK OVER 200-DAY LINES... The Nasdaq indexes also regained their 200-day moving averages -- and on very heavy volume. The Nasdaq 100 Shares (QQQQ) achieved the biggest upside volume day of the year. The Nasdaq Composite had the highest upside volume in a month. In my view, the Nasdaq market is in the most critical spot of all. Since it's a leader for the rest of the market, this is the precise spot where the Nasdaq needs to make a stand. It's always dangerous to place too much emphasis on one day's action. I have to admit, however, that today's combination of price and volume activity has the look of an upside turnaround. The market did what it had to do today at just the right time. I'd like to see more upside follow-through to confirm today's turnaround, but today was a good start. At the end of last week, I suggested holding off on committing new funds until the short-term picture stabilized. Another day or two of good price and volume action, however, should justify a little nibbling on the long side. I'll feel more strongly about that when the major averages close back over their 50-day lines on rising volume. Today's upside turnaround in the market also prevented upside breakouts in bear funds.
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