Following a modest opening, stocks moved higher on expectations
of better Q3 earnings. By noon, the Dow Industrials had gained
about 120 points, but volume lagged until early afternoon, when it
picked up and drove prices another 150 points to over 10,000 for
the best day in weeks for U.S. stocks.
Yesterday also marked the second advance in as many days. But
with a lack of news and stocks having been down for eight
consecutive days, many technicians concluded that the rally was no
more than a technical bounce from the lowest levels of the
The financial group turned in the best performance, up 4.4%.
State Street Corporation
) projected a Q2 profit well above analysts' estimates and was
credited as the catalyst for the group's gains. Both
American Express Company
JPMorgan Chase & Co.
) rose 5%, and
Bank of America Corporation
) gained 4.6% -- all Dow components.
Technology stocks were strong with
Cisco Systems, Inc.
) up 5.3% and
) gaining 4.2%. The technology-heavy Nasdaq rose 4.2%.
The U.S. dollar fell versus the euro, and was off 0.2% against a
basket of currencies. And Treasurys fell as investors moved to more
At the close, the Dow Jones Industrial Average rose 275 points
to 10,018, the S&P 500 gained 32 points to 1,060, and the
Nasdaq was up 66 points to 2,159.
The NYSE traded 1.3 billion shares with advancers ahead of
decliners by over 5-to-1. The Nasdaq crossed 652 million shares
with advancers ahead by 3.5-to-1.
Crude oil for August delivery rose for the first time in seven
sessions, gaining $2.09 at $74.07 a barrel. The
Energy Select Sector SPDR
) gained $1.79, closing at $51.65.
August gold rose $3.80 to settle at $1,198.90 an ounce. The
PHLX Gold/Silver Sector Index
) closed at 173.09, up 4.72 points.
What the Markets Are Saying
Yesterday's rebound was violent, sudden, and resulted in a big
loss for anyone who was short the market. As a result, I received a
score of e-mails asking how the market could jump 275 Dow points in
just a day if we are in a bear market.
While bull markets are known for a plodding action that takes
weeks to form support zones and are coupled with relatively mild
corrections, bear markets behave the opposite. Sell-offs in bear
markets usually plough through days or even weeks of support,
knifing through the bull's zones in just days. And then, just when
the average investor decides to plunge into the short side of the
market, a violent rally smashes the shorts forcing them to run and
The last point, the forced
, is the reason why corrections (up) in downtrends are usually
violent, low-volume reactions. Those who are short are usually
speculators who panic and cover their short, buying in at "the
market" as soon as their position is threatened. This volatility is
characteristic of a true bear market.
Yesterday's Trade of the Day
ProShares UltraShort Russell 2000 Value ETF
), and the write-up noted that, "the market is currently oversold
and due for a bounce."
When our indicators show that the market is oversold, traders
should wait for stocks to rally and then short into the rally.
Stop-loss orders (buy orders above the market) should be entered to
protect against one of the violent short-covering
The key to making money trading the short side is no different
than on the long side: You must protect against losses and take
solid profits when they are offered.
Yesterday's bounce pushed above the first barrier (resistance),
which is the breakdown point at the neckline of the potential
at 1,040 to 1,045. The next barrier is the June 28 low of 1,071,
followed by the 20-day moving average at 1,074, and then the 50-day
moving average at 1,101.
Trading in a bear market will test your skills as a trader and
put your emotions to the test. It is not suited to everyone, so as
President Harry Truman said, "If you can't stand the heat, get out
of the kitchen." But for those who can stand the heat, there could
be a great feast ahead.
Today's Trading Landscape
Earnings to be reported before the opening
Greenbrier Companies, Helen of Troy and International Speedway.
Earnings to be reported after the close include:
Lawson Software and Nu Horizons Electronic.
Economic reports due
: chain store sales, jobless claims (the consensus expects
465,000), EIA natural gas report, EIA petroleum status report,
consumer credit (the consensus expects -$2 billion), Fed balance
sheet and money supply.
If you have questions or comments for Sam Collins, please
e-mail him at
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