Commenting on today’s trading in the .DJI and other major indices Gorilla Trades strategist Ken Berman said:
Stocks continue to prove their resilience almost on a daily basis, and today’s session was another impressive one on Wall Street. While the Dow Jones Industrial Average (INDEXDJX:.DJI) declined for the third day in a row, the mighty Nasdaq staged an afternoon rally and finished in the green, despite the overnight profit warning from Apple (AAPL, -1.8%).”
Q4 2019 hedge fund letters, conferences and more
Dow (.DJI) Was Down To 29,232
Although stocks started the holiday-shortened week in a negative fashion, adding to Friday’s losses, bulls yet again stepped in to buy the dip and the major indices closed the day near their session highs. The Dow (.DJI) was down 166, or 0.6%, to 29,232, the Nasdaq (INDEXNASDAQ:.IXIC) gained 2, or 0.02%, to 9,733, while the S&P 500 (indexsp:.inx) fell by 10, or 0.3%, to 3,370. Decliners outnumbered advancing issues by an almost 2-to-1 ratio on the NYSE, where volume was well above average.
Although domestic stocks have been holding up very well in the face of the continued coronavirus-related worries and the mounting evidence regarding a serious slowdown in China, other asset classes are telling a different story. Treasury yields finished deep in the red for the second session in a row, gold closed at its highest level in almost seven years, while the dollar continued to march higher as well, confirming the demand for safe-haven assets. As the main Asian benchmarks lost significant ground today, the jury is still out whether or not the rally in U.S. stocks will continue n the coming weeks.
Uncertainty Surrounding The Utilities Sector
The utilities sector continues to be the most important beneficiary of the uncertainty surrounding the epidemic, with the popular XLU ETF (XLU, +0.7%) hitting yet another all-time high today. The combination of falling yields and increasing demand for U.S. assets have been boosting sector in recent weeks, and inflows remained strong today. Conversely, industrials, consumer goods, and financials were all weak today, and while tech stocks bounced back in late trading, most of the risk-on sectors remained under pressure.
It’s hard to say that Apple’s profit and revenue warning came as a surprise for most analysts, in light of the company’s exposure to China, but it still served as a reality check for some investors. The extent of the supply disruptions could be behind today’ s drop in the stock, as given the still quickly rising number of new coronavirus cases, the broad lockdown could continue for several weeks if not months. The fact the Nasdaq hit at an all-time closing high is encouraging for bulls, but China’s role in the global supply chain is likely bigger than a lot of investors realize.
We will not only have a very busy day of economic releases tomorrow, but the minutes of the latest Fed meeting will also be published in the afternoon. While the minutes won’t reflect the coronavirus-related uncertainty, they could still provide clues regarding the flexibility of the Central Bank’s policies. The Producer Price Index (PPI), building permits, and housing starts will highlight the pre-market session, while the minutes are due to come out at 2 pm EST. Building permits missed big time in January, and with today’s weaker-than-expected NAHN Housing Market Index in mind, the forward-looking measure could have a major impact on the homebuilder sector.
Technical Corner. Although the divergence between the relatively weak Dow (.DJI) and the other major indices is widening, the advancing short-term trend continues to be safe even in the case of the industrial average, according to the most reliable trend indicators. The large-cap benchmarks remain well above their rising 200-day moving averages of 8,342 for the Nasdaq, 3,035 for the S&P 500, and 27,170 for the Dow, and the indices are also clearly above their steeply rising 50-day moving averages of 3,260 for the S&P 500, 9,162 for the Nasdaq, and 28,724 for the Dow.
Walmart (WMT, +1.5%) reported earnings today before the opening bell, and while the company missed both on its top and bottom lines, its stock finished higher in the face of the weakness in the consumer sector. The firm’s strong e-commerce numbers were likely behind the stock’s resilience, and Walmart’s upbeat guidance might propel its shares even higher. The stock is now above both its 50- and 200-day moving averages following a long period of consolidation, so it could be ready to resume last year’s impressive rally. Stay tuned!
