Market technician Dave Chojnacki of Street One Financial examines Tuesday’s bounce-back rally for U.S. stocks and updates the key technical levels to focus on as we progress through what promises to be an eventful trading week.
Equities gapped up at the open on Tuesday, trying to regain the recent losses. There were rumors of progress in Washington on the tax cut, and the Defense industry liked Trump’s directive for Afghanistan. This primed traders who were ready to buy the dip.
The major averages got off to a good start and kept a steady move to the upside throughout the session. The Nasdaq 100 (NDX), which has given up the most recently, had the strongest day ending with significant gains.
The Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) also closed solidly in the green. At the close, the DJIA was up 0.9%, the SPX gained 0.99%, and the NDX up a strong 1.5%. Breadth was decidedly positive, 2.5 to 1, on below average volume. ROC(10)’s advanced in the session, however, all three major averages remain in negative territory.
RSI’s moved to the upside with the DJIA leading at 54.6. The NDX ended at 52.1 and the SPX at 49.3. MACD’s remain below signal for all three major indices. The ARMS index ended the day at 0.85, a bullish reading.
The major indices had their strongest session in a long time on Tuesday, as the recent pullback of nearly 5% for the NDX and 3% for the SPX was primed for a bounce. We got that move yesterday on below average volume, however.
There were some important technical gains in the session, as the SPX and the NDX moved back above their 50D-SMA’s of 2450 and 5810, respectively, but they both fell just short of claiming their 20D-SMA’s of 5881 (NDX) and 2462 (SPX). The DJIA closed at 21899, just 17 points below its 20D-SMA of 21916.
A follow through in today’s session could get near term technical bias positive again. The iShares Russell 2000 (NYSE:IWM) (Russell 2000 Small Cap ETF) was up 1%, but continued to remain below its 200D-SMA. Meanwhile, the VIX declined 13.95% to 11.35, moving below the key 12 handle as volatility moves back toward historical lows.
Near term support for the NDX is at 5850 and 5825. Near term resistance is at 5875, 5881 and 5900. Near term support for the SPX is at 2450 and 2437. Near term resistance is at 2462 and 2475.
Europe is slightly lower in early trade on Wednesday, and U.S. Futures are pointing lower in the premarket. On the economic data front today, we’ll see PMI Composite at 9:45am, New Home Sales at 10:00am, and the EIA Report at 10:30am.
The SPDR Dow Jones Industrial Average (SI:SPDR) ETF fell $0.51 (-0.23%) in premarket trading Wednesday. Year-to-date, DIA has gained 11.98%, versus a 10.82% 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 #3 of 76 ETFs in the Large Cap Value ETFs category.