Market technician Dave Chojnacki of Street One Financial examines Monday’s big market rally and looks to the underlying technical indicators for the major indices to see whether the recent strength can continue.
Equities opened lower on Monday, continuing last week’s pullback. Economic numbers came in as expected or better. As the day wore on, fears of a Trade War were diminishing and the major indices began reversing to the upside. The 10-Year Treasury Note was inching higher during the session, but equities seemed to ignore as it remained below 2.90%.
The market began to rally significantly in the afternoon with Financials and Industrials looking strong. They helped to push the Dow to its first gain in five sessions. It was the strongest index on the day. At the close, the Dow Jones Industrial Average (DJIA) gained 1.3%, the S&P 500 (SPX) added 1.1%, and the Nasdaq 100 (NDX) was up 1%. Breadth was decidedly positive, 3 to 1, on below average volume. ROC(10)’s advanced in the session, but the DJIA and SPX remained in negative territory. The NDX continued in positive territory.
RSI’s moved higher, with the NDX leading at 56. The DJIA ended at 47.1 and the SPX at 49.9. The DJIA and SPX remain with their MACD below signal. The NDX continues to be above signal. The ARMS index ended the day at 0.58, a very bullish reading.
Yesterday’s reversal strengthened the near term technicals, especially for the weaker DJIA and SPX. The NDX remains strong near term. The DJIA and SPX moved above their 20D-SMA’as of 24848 and 2695, respectively. The DJIA closed at 24874, holding below its 50% retrace level of 25238. The SPX closed at 2720, remaining below its 50D-SMA of 2736. It continues below its 50% retrace level of 2726. We need to get through that level near term to improve technical strength.
The NDX remains the strongest index near term, holding above its 50% retrace level of 6664 and 61% level of 6748. It continues to march toward its recent closing high of 7022. The VIX fell 4.3% to finish at 18.73.
Near term support for the NDX is at 6710 and 6708. Near term resistance is at 6800 and 6850. Near term support for the SPX is at 2695 and 2668. Near term resistance is at 2736 and 2760.
Europe is higher in early trade Tuesday, and U.S. Futures are pointing higher in the premarket. The only major piece of economic news due out today is Factory Orders at 10:00am.
The SPDR Dow Jones Industrial Average (SI:SPDR) ETF rose $1.44 (+0.58%) in premarket trading Tuesday. Year-to-date, DIA has gained 0.59%, versus a 2.00% rise in the benchmark S&P 500 index during the same period.
DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 80 ETFs in the Large Cap Value ETFs category.