(RTTNews) - After showing a notable move to the downside in morning trading on Wednesday, stocks staged a significant recovery over the course of the afternoon. The volatility came as traders kept a close eye on developments in Europe.
The major averages eventually ended the session mixed, with the Dow stuck just below the unchanged line. While the Dow edged down 6.66 points or 0.1 percent to 12,496.15, the Nasdaq rose 11.04 points or 0.4 percent to 2,850.12 and the S&P 500 crept up 2.23 points or 0.2 percent to 1,318.86.
Continued worries about the financial situation in Europe contributed to the early weakness on Wall Street, which came as European leaders held a closely watched summit in Brussels.
Traders were particularly worried about the potential impact of Greece leaving the eurozone after the debt-plagued nation's recent failure to form a government.
The worries about Europe overshadowed a Commerce Department report showing a bigger than expected increase in U.S. new home sales in the month of April.
The report showed that new home sales rose 3.3 percent to an annual rate of 343,000 in April from the revised March rate of 332,000. Economists had expected new home sales to climb to 335,000 from the 328,000 originally reported for the previous month.
The Commerce Department also said that the median sales price of new houses sold in April was $235,700, up 0.7 percent from $234,000 in March and up 4.9 percent from $224,700 a year ago.
However, the substantial rebound by the markets was attributed to reports out of the European summit regarding the steps that the leaders are willing to take to boost economic growth.
A report from Dow Jones said Italian Prime Minister Mario Monti and French President Francois Hollande met ahead of the summit and agreed to consider all possible measures to boost European growth, including euro zone bonds.
Separately, Lou Brien, market strategist at DRW Trading, said the rebound reflected reports that German Chancellor Angela Merkel is advocating a eurozone-wide bank deposit guarantee.
Despite the recovery by the broader markets, Dell (DELL) continued to post a steep loss, with the PC giant tumbling 17.2 percent after reporting weaker than expected first quarter results and providing disappointing second quarter revenue guidance.
Sector News
Gold stocks showed a substantial turnaround over the course of the trading day after coming under pressure in earl trading. After falling by as much as 3.1 percent, the NYSE Arca Gold Bugs Index surged up by 4.1 percent.
While gold for June delivery fell $28.20 to $1,548.40 an ounce, the price of the precious metal moved back to the upside in after-hours trading.
Significant strength also emerged among housing stocks, as reflected by the 1.4 percent gain posted by the Philadelphia Housing Sector Index. Oil service, transportation, and retail stocks also turned higher as the day progressed.
Meanwhile, computer hardware stocks saw continued weakness following the disappointing news from Dell. The NYSE Arca Computer Hardware Index fell by 2.3 percent to a four-month closing low.
Considerable weakness also remained visible among pharmaceutical stocks, as reflected by the 1.2 percent loss posted by the NYSE Arca Pharmaceutical Index. The loss extended a recent downward move by the index, which fell to its worst closing level in five months.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region came under pressure during trading on Wednesday. Japan's Nikkei 225 Index tumbled by 2 percent, while Hong Kong's Hang Seng Index ended the day down by 1.3 percent.
The major European markets also saw significant weakness on the day. While the German DAX Index plummeted 2.3 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index dove 2.6 percent and 2.5 percent, respectively.
In the bond market, treasuries showed a strong move back to upside after giving back some ground in the two previous sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 7.2 basis points to 1.721 percent.
Looking Ahead
While any news out of Europe is likely to drive trading on Thursday, traders are also likely to keep an eye on the release of U.S. reports on durable goods orders and weekly jobless claims.
Trading could also be impacted by reaction to earnings news from Hewlett-Packard (HPQ), which has released its quarterly results after the close of today's trading.
DOW 12309 SUPPORT
Jeremy,
I use slow stochastics in my trading and depend on an accurate reading in my decision making. However, MC slow stochastics are not working for me, and I have to use other chart services for accurate readings. The MC default settings do not work. The closest facsimile settings I have found are %K-14, %D-3, and slow %D period-5. These settings provide a good shape and K-D line relationship, but the values for the K and D lines are incorrect. For example, at today's close according to another chart service the stochastics came out of their previous embedded status, but MC stochastics with the above settings had not done so.
Can you recommend accurate settings for MC stochastics, or can the problem not be fixed?
Correction to previous comment:
The chart that lost its embedded status was the June E-Mini SP with a %K reading of 21.32, but the cash indexes remain embedded with the above settings. So perhaps I have the correct settings, but I would appreciate your looking into my concern and confirm, or not, whether the settings I am using are reliable. Thanks
go to phils gang.com and you will learn all you need to know...this guy is one of the best teachers and traders in the world............
Dow support 12309
I agree with the double bottom in Gold.
When this month of May ends, there's also a double bottom in the monthly interval.
While the EUR made lower Highs and Lows over the past 13 months, Gold kept itself in a trading range over the same time.
I'm happy to see that Gold has its own life independent from the EUR. This day proved it again.
There are good bullish setups for Gold, but they still need confirmation.
These might come with this month of June when Greeks vote again among with other (negative) news.
I would use the coming up-swing in the stock markets to cover my long positions.
Last chance, I think.
I'm thinking gold did a small double bottom, enough to convince the gold bugs that the worst is over. Interestingly the measurement implies a rally to about 1665, which would be a return to the former support trendline, now resistance. Classical technical analysis says when a trendline is seriously broken price often returns to it before resuming the direction of the break, thus giving the gold bulls a false sense of security, and clearing them out of the market in the process, when the downtrend resumes.
Andy
Double bottom with last week low AND on May low vs Dec low. Looks like a low risk, easy stop, long!
Not a double bottom going back to December. Gold recently broke down below a trendline in effect since 2009. The lows all line up as the bottom of a giant descending triangle that implies a drop to 1125 if support does not hold. True double bottoms only occur after a very long decline, not as a sequence of the same lows spread out as part of a larger formation.
If the dollar keeps going up then any rally in gold will be short lived. It may never even make it past 1600 where it ran into problems a few days ago.
Andy
If you are an Elliot wave trader, the weeklies would indicate that gold has not bottomed. It needs to complete the 5 leg.
When news drives investing, emotions often get in the way of profits. I continue to look at the technicals... which led to a purchase yesterday of Lululemon and a healthy profit today. There are plenty of other stocks with potential for significant returns due to the pullback in recent weeks.
Hey Dr. Stock,
Be very careful and honor your stop. LULU this month hit the yearly R2 and if this monthly candle ends up a doji it has a 80% probability of taking a dive to the yearly pivot point at 48 so keep an close eye out. Also see other retailer RL, EL, UA etc. Sell in May and go away.
I don't know if this is significant recovery as it only happened during the last 45 minutes of trading, with the bulk of the day going negative. Is this due to pure speculation on the European diner results?