On Friday, stocks opened sharply lower, gapping down from the
late selling of Thursday, and within minutes drove through the lows
of the May 6 "flash crash" (or "glitch day"). But almost as soon as
prices hit those prior lows, buyers rushed in to take advantage of
bargains, especially in the financial sector, and heavy volume
reversed the broad tape, ending the immediate slide in the
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The 3% sell-off on Thursday caused foreign markets to react with
heavy selling overnight, and that was blamed for the lower opening
of U.S. stocks on Friday. Despite the almost immediate turnaround,
there was extensive damage done to equities both in the U.S. and
foreign markets, and the
Dow Jones Industrial Average
) was down 4.02% for the week. And, for the year, the Dow is off
Some of the biggest U.S. banks led Friday's rally, with
JPMorgan Chase & Co.
) up 5.87%,
Bank of America Corporation
) up 4.5%, and
American Express Company
) up 3.1%.
Short sellers, focused on the financial sector, had apparently
expected another deep sell-off, but when heavy buying volume
entered the market early, the shorts rushed to cover, and that
accelerated the rate of the advance.
By noon, the early buying had run its course, and by the close
the major indices gave back most of the early gains. However,
buyers, encouraged by the passage of a finance reform bill and by
the early reversal up, appeared in the final minutes of trading and
drove the Dow to a gain of 1.25% for the day.
Even though the Senate's finance bill will curb many former
practices of the banks, there was an accommodation with lawmakers
taking away some of the most controversial items. And, as one
investment officer said, "now we at least know the devil in the
details." Others seem to think that the harm done to financial
stocks had already outweighed that done by the bill.
The broad market, aside from the financials, gained from
Germany's commitment to the European Union's rescue package. And an
investment officer at Victory Capital Management was quoted by the
Wall Street Journal as saying, "You had a lot of pressured selling
over the last week, but like most things, there's a clearing price
that tends to attract investors back to the market." He also said,
"The things plaguing Europe, they're not small and it's going to
take a while to fix, but I just think investors are looking for
At the close the Dow, was up 125 points to 10,193, the
) gained 16 points to 1,088, and the
) was up 25 points to close at 2,229.
The NYSE traded 2.3 billion shares with advancers over decliners
by 3-to-1. The Nasdaq crossed 1.1 billion shares with advancers
ahead by just under 2-to-1.
Despite strong equity markets and a rise in the euro, crude oil
fell again with the July delivery off 76 cents to $70.04 a barrel.
Energy Select Sector SPDR
) gained 91 cents, closing at $53.07.
June gold fell $12.50, closing at $1,176.10 an ounce, and the
PHLX Gold/Silver Sector Index
) gained 1.29 points to 166.11.
What the Markets Are Saying
Our readers will remember on May 10, just two days after the
"flash crash" day or "glitch day," which drove stocks to just above
the February lows,
, "With two extremely volatile sell-off days behind us, it appears
more than likely that there are still some institutional buy orders
between the S&P 500's February closing low of 1,063 and the
200-day moving average at 1,097. And unless the market closes under
the February low, the overall bull market is intact but shaky."
At that time, it was as clear as if the institutional ledgers of
buy programs had been opened to us that there were buying programs
in force that could be triggered again.
And, on Friday morning, just minutes after the opening, when
stocks fell sharply lower and into those zones, blocks of buy
orders suddenly appeared and reversed the sell-off. Interesting
that the low on Friday was made in the first five minutes of
trading, and that low was at 1,055.9, a number that was almost
exactly identified by the trading of May 6.
Coincidence? As the Goldman Sachs executive said recently before
the Senate Finance Committee, "There are no coincidences on Wall
Friday's impressive reversal at just above the closing low of
February's correction provides five very strong numbers that could
turn out to be genuine bottoms to the current correction. So this
gives us clearly defined support and resistance areas in which the
stock market could trade for the remainder of the summer.
A new support line may now be drawn from the S&P 500's Oct.
2 low of 1,020 to the Nov. 2 low of 1,029, to the Feb. 5 low of
1,045, to the two recent lows of 1,066 and 1,056 (reversal
The key support has held. The worst is over -- for now. But the
longer-term outlook is still cloudy.
Tomorrow we'll consider the resistance zones, but for now, the
immediate trend is up with the first resistance at the 200-day
moving average at S&P 1,104, and Dow 10,263. A violation of the
last week's lows, which are major support lines, would almost
certainly result in a run of new selling.
Today's Trading Landscape
Earnings to be reported before the opening
Campbell Soup, Flotek Industries, Longtop Financial and Yingli
Earnings to be reported after the close include:
ChinaEdu, Donaldson and Phillips-Van Heusen.
Economic reports due:
existing home sales (the consensus expects 5.6 million).
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