STOCKS SURGE 3% AFTER A WEAK OPEN -- AND 200-DAY AVERAGES HOLD ONCE AGAIN -- SMALL CAPS ARE HOLDING UP BETTER THAN LARGE CAPS -- HOMEBUILDERS AND RETAILERS MADE CYCLICALS THE DAY'S STRONGEST SECTOR
STOCKS SCORE BIG UPSIDE REVERSAL FROM 200-DAY AVERAGES ... The stock market staged an impressive upside turnaround today. After opening 500 points lower this morning, the Dow Industrials ended the day 230 points (0.96%) higher. That's a gain of more than 700 points from its opening price. Stock indexes gained roughly 3% from their sharply lower opening this morning. The fact that those upside turnarounds took place at their 200-day averages was especially impressive. Chart 1 shows the Dow Industrials scoring an upside reversal day from just above its 200-day line. Initial overhead resistance for the Dow to overcome is at 24,400. Chart 2 shows the S&P 500 closing well above its 200-day average after opening below it this morning. That's a very encouraging sign. Initial overhead resistance for the SPX is at 2674. A close above that initial barrier would be an even more encouraging sign. Chart 3 shows the Nasdaq Composite Index also find support near its 200-day average. The Nasdaq was the day's strongest index with help from biotech and technology stocks. Small caps also had a strong day.
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Chart 1
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Chart 2
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Chart 3
SMALL CAPS ARE SHOWING RELATIVE STRENGTH ... Small caps helped lead the day's upside reversal. Chart 4 shows the Russell 2000 Small Cap Index gaining 1.29% (versus 1.1% for the S&P 500 Large Cap Index). And it also bounced impressively off its 200-day average. The solid line on top of Chart 4 shows a relative strength ratio of the Russell 2000 versus the S&P 500 rising since the end of February. That shows that small caps have fared better than large caps during March and the first week of April. That may be partially due to the fact that domestically-oriented small cap stocks are less exposed to tariff threats than large multinational stocks. It's usually a good sign for both when small caps are acting better.
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Chart 4
HOMEBUILDERS LEAD CYCLICALS HIGHER ... Ten of eleven market sectors ended the day higher. Energy was the only loser (-0.13%). Six gained more than 1% including cyclicals, staples, healthcare (led by biotechs), technology, financials, and real estate. Consumer Discretionary stocks were the day's biggest gainers. Chart 5 shows the Consumer Discretionary SPDR (XLY) gaining 1.8% and bouncing off chart support along its early February low. It was led higher by homebuilders and retailers. Chart 6 shows the S&P Retail SPDR (XRT) jumping 2.7% on the day. Homebuilders, however, were the group's biggest gainers. Chart 7 shows the U.S. Home Construction iShares (ITB) surging 4.6%. That enabled it to climb back over its 200-day moving average.
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Chart 5
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Chart 6
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Chart 7
APPLE REGAINS 50-DAY LINE ... It's usually a good sign when the market's biggest stock has a strong day. Chart 8 shows Apple (AAPL) climbing 1.9%. It was one of the day's most actively traded stocks. Apple remains above its 200-day average. And closed back over its 50-day line today (blue circle). The green lines also show the stock in a support zone between its 50% and 62% Fibonacci retracement lines. The fact that Apple is the market's biggest technology stock gives it even more importance. Its relative strength line (top box) shows the stock holding up much better than the S&P 500 over the last two months. That may be a good sign for both.
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Chart 8
VIX TURNS DOWN ... The CBOE Volatility (VIX) Index fell 5% today and in danger of falling back below 20. The hourly bars in Chart 9 show the VIX unable to clear overhead resistance at 26 which was formed at the start of March. That's a positive sign for stocks. So is the fact that the VIX ended the day right at 20 and in danger of falling to the lowest level in more than two weeks (bottom line). That would also give a boost to stocks. The hourly bars in the lower box show the S&P 500 trying to cross above a falling trendline extending back more than three weeks. That would be another positive sign.
