Week in Review: Market Analysis
Stocks showed resilience again Monday, shaking off huge losses on the Chinese market and a spike in crude oil prices to finish higher.The Shanghai index plunged 8.3% for the session, setting off fears of a corresponding drop in the U.S. markets. A 9% dive on the Chinese exchange Feb. 27 triggered massive losses on Wall Street. This time, U.S. stocks mimicked Wednesdayâs action. That day, the Shanghai index tumbled 6.5%.
But a late-day surge propelled the major indexes to healthy gains. Mondayâs final tally: The Nasdaq, S&P 500 and NYSE composite all shook off early losses, closing with 0.2% gains. All closed near session highs. Volume finished modestly lower across the board. The jump in oil prices also sent several leading energy stocks higher. Transportation stocks fell on the news, as the Dow transports sank 0.7%.
China-related ADRs showed resilience of their own. Ctrip.com, Baidu.com and most other top-rated Chinese stocks held firm despite the losses in Shanghai. Chinese ADRs also recorded mixed results during the prior weekâs shake-up on Chinaâs main stock exchange.
Midcaps outperformed on the session as the S&P 400 rallied 0.4% to an all-time high. Meanwhile, the Nasdaq advanced for the sixth straight session. The S&P 500 and the small-cap S&P 600 also scored record closing highs, rising 0.2% each. Meanwhile, the Dow added 0.1%, also a record finish.
Comments from the Fed chairman, an economic report and rising bond yields teamed up to knock stocks lower Tuesday. Higher volume across the board marked a distribution day on Wall Street. A partial rebound late in the day narrowed the marketâs losses.
Still, the losses were moderate, and the actions of the leading stocks were mostly positive. At that time, Tuesdayâs dip was viewed as mild when in the context of the current rally. Pullback's are normal in an uptrend; even the biggest bull markets of all time went through some brief periods of consolidation on the way up.
Federal Reserve Chairman Ben Bernanke put the market on edge early, noting that the economy is showing signs of improvement. Investors took the comments as a sign that interest-rate cuts are not coming any time soon. The May ISM services sector report showed expansion, echoing the Fed chiefâs remarks.
Bond yields jumped on the news. The yield on the benchmark 10-year note leapt to 4.98%, up from 4.93% Monday. None of that made much of a difference to leading stocks. The IBD 100 edged down just 0.1%. That marked the seventh consecutive session that IBDâs gauge of top-rated stocks outperformed the broader S&P 500.
The stock market retreated broadly Wednesday on fresh evidence of inflation. The Dow lost 1% while the S&P 500 and Nasdaq fell 0.9%. The NYSE composite shed 1.1%. Volume declined on the Nasdaq. But trading edged up late in the day on the NYSE, giving the S&P 500, Dow and New York composite another distribution day. The IBD 100 gave up 1.2% Wednesday. That broke a string of seven sessions in which the index of top-rated stocks had outperformed the major indexes. Few leaders, though, met heavy volume or got into serious trouble.
The indexes fell sharply at the open. Nonfarm productivity rose at a 1% annual rate in the first quarter. That was revised down from an initial 1.7% reading. Labor costs jumped 1.8% â well above expectations. The news heightened inflation fears. Meanwhile, the European Central Bank, as expected, raised its key interest rate to the highest level in nearly six years. Policy makers across the Atlantic fear that rising oil prices and wages could spur more inflation.
Stocks tanked Thursday as a spike in bond yields and rising oil prices handed equities their third straight loss. The Nasdaq, NYSE composite and S&P 500 all tumbled 1.8%. The Dow sank 1.5%. Volume spiked up on the NYSE and was higher on the Nasdaq. The Dow has skidded 3% the precious three days. The S&P 500 has dropped 3.2%. The continuing declines, combined with accelerating volume, signal a shift in the marketâs tenor.
Week in Review: Market Analysis (cont.)
Bearish comments from influential PIMCO bond trader Bill Gross sent the yield on the benchmark 10-year note above 5% for the first time in 11 months. The 10-year Treasury yield jumped to 5.10% from 4.97% Wednesday, after hitting an intraday high of 5.13%. Oil prices also kept rising, tacking on a 1.5% gain to close at nearly $67 a barrel.
All 30 Dow components ended in the red, handing the blue-chip index a 1.5% loss. The midcap S&P 400 collapsed 2.1% and the small-cap S&P 600 dived 1.9%. Most major indexes came close to their 50-day moving averages. Thursdayâs action by leading stocks confirmed the need for caution. The IBD 100 plunged 2.8% as we saw a wide array of top-rated stocks falling in heavy volume.
Stocks rebounded Friday after a three-day slide, but still finished lower for the week. The tech-laden Nasdaq rebounded 1.3%. The Dow industrials gained 1.2%. The NYSE composite and S&P 500 rose 1.1% each. Several indexes found support at their 50-day moving averages. Institutional investors will often step in and snatch shares of a leading stock at that support level. Theyâll sometimes do the same for the major market indexes.
But trading volume, another gauge of big investorsâ interest, dried up Friday. Nasdaq volume sank 19% compared to Thursdayâs level. NYSE turnover eased 18%. Ideally, youâd like to see stocks climb in higher volume and occasionally pull back in lighter trade. Instead, the opposite held true for most of the week.
Investors found some relief Friday, as oil prices retreated. July crude fell $2.17 to $64.76 a barrel. Chip stocks helped revive the broad indexes. National Semiconductor vaulted 15% in huge trade. The maker of chips used in wireless handsets beat quarterly earnings views. The firm also upped its Q1 sales forecast and announced a $2 billion share buyback. The Philadelphia semiconductor index rallied on the news, surging 3.1%.
For the week, the NYSE composite dropped 2.2%. The S&P 500 slid 1.9%, the Dow 1.8%. The Nasdaq shed 1.5%. Leading stocks also got a reprieve, as the IBD 100 picked up 1.1% Friday. That pared the IBD 100âs weekly loss to 2.2%.
Thereâs a reason XX.com pays such close attention to a stockâs price action and its volume â one rarely goes far without the other. And when prices make big moves without supporting volume, or volume spikes without price gains coming along, thatâs often a sign of trouble.
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