Market technician Dave Chojnacki of Street One Financial recaps Monday’s big equities rally, updates the important technical indicators for the major U.S. averages, and looks to interest rates as perhaps the best gauge of where stocks may be headed next.
Last Friday, the SPX tested its 200D moving average and managed to hold that level and rally into the close. The market opened higher on Monday morning following through on Friday’s gains. The 10YR dropped by 2 basis points to 2.83%.
Investors are watching rates closely, as most of the pullback in equities has been blamed on rising interest rates. The major indices continued their rally through the day and ended with significant gains.
Volume was the lowest in six sessions, which may have put somewhat of a damper on the gains. At the close, the Dow Jones Industrial Average (DJIA) and Nasdaq 100 (NDX) gained 1.7%, and the S&P 500 (SPX) moved up 1.4%. Breadth was decidedly positive, 2.75 to 1, on average volume. ROC(10)’s advanced in the session across the board, but remained in negative territory.
RSI’s moved higher, with all three major averages moving into the lower 40’s. All three major averages continue with their MACD below signal. The ARMS index ended the day at 0.60, a bullish reading. The major indices have now had two consecutive days to the upside, after pulling back just over 10% from their recent highs.
The major averages had recently moved below their 50% retracement levels. The DJIA and NDX have now moved back above those levels of 24206 and 6477, respectively. The SPX remains just below that level of 2665.
The DJIA closed at 24601, remaining below its 50D-SMA of 25111. The NDX ended the day at 6523, below its 50D-SMA of 6591. It holds above its lower Bollinger Band® of 6366. The SPX closed at 2656, below its 50D-SMA of 2719. The SPX closed above its lower Bollinger Band® of 2597. It closed above its 200D-SMA of 2540.
The VIX fell 11.8%, to 25.65. Volatility remains high, but has pulled back from extreme levels.
Near term support for the NDX is at 6500 and 6475. Near term resistance is at 6550 and 6591. Near term support for the SPX is at 2650 and 2600. Near term resistance is at 2700 and 2719.
Europe is lower in early trade Tuesday, while U.S. Futures are moderately lower in the pre-market. With no major economic reports scheduled for today, traders will be watching interest rates and company earnings as the main catalysts.
The SPDR Dow Jones Industrial Average (SI:SPDR) fell $1.07 (-0.43%) in premarket trading Tuesday. Year-to-date, DIA has declined -0.49%, versus a -0.57% rise in the benchmark S&P 500 index during the same period.
DIA currently has an ETF Daily News SMART Grade of B (Buy), and is ranked #9 of 79 ETFs in the Large Cap Value ETFs category.