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Stocks jumped out of the gate this morning, as speculation on further Chinese government spending this week on major construction projects fueled new optimism into commodity sectors. Crude bounced up to closed above $45/barrel. Gold, however, traded lower again and tested $900/ounce before closing higher. Energy and mining stocks were particularly strong: OXY +8.28%; HES +6.88%, APA +6.62%; FCX +13.38%, CNX +11.67%; CLF +14.36%.
Education stocks, on the other hand, fell lower as the broad market rallied. I wrote about the recent downturn in education stocks last week. APOL dropped 7.77% and ESI fell 3.78%. I think ESI has more room to go lower. In our Trading Room, I talked about playing some puts in these two:
HappyTrading
ESI/APOL
March 110 puts/March 70 puts are doing well...
In last night's article, I mentioned that the market is struggling to decide whether SPX 700 will hold and that we'd probably need to wait until this morning. Sure enough, the market found reasons to jump higher this morning. I also said that if the market bounces, the ultrashorts could go down in a hurry. EEV fell 13.42%, while FXP slumped 18.32%!! SRS closed down 3.53%, off of today's low. SKF actually closed in the green, as the financials were still relatively weak. But, SKF went from $218 to $195 in about 90 minutes. That's a 10% drop in one-and-a-half hour!!
Let's take a look how the market closed as I think this rally can continue for a couple of more days. The Dow was up +149.82 points; SPX added +16.54 points; Nasdaq gained +32.73 points:
Commodity-related sectors led the market today: OIH (oil services) +6.58%; XME (metals and mining) +7.8%; USO (oil) +8.74%. Techs were solid, too, with SOXX (semiconductors) adding +4.59%. MOO (agriculture) garnered +4.59%. GLD (gold) lost 1.17%. FXI (Chinese ADRs) advanced +9.27%.
SPX
SPX added +16.54 points to close at 712.87, above 700. Its daily MAs and MACD were still lower.
Nasdaq
Nasdaq gained +32.73 points to close at 1353.74. Its daily MAs and MACD were also down.
SPX held above that 700 level, and Nasdaq gained back what it lost in the previous two days. But, there are still plenty of skeptics about this rally. Can you blame them? The sentiment has been very bearish for a while now. One day is not going to change that. Personally, I think it is time for the market to make a move higher. SPX 700 is a very significant level. Allow me to demonstrate on SPX's monthly chart:
SPX (15-Year Monthly)
This is a 15-year monthly chart for SPX. As you can see below that 700 level, there's really not much support. There is a soft support at 600, but, you'd have to go all the way to 500 to find the next plateau!! Also, in the monthly MACD the two MAs (the red and the green lines) are so far apart. Normally when the gap between the two MAs gets big, it is time for a turn. In the past 15 years, we have not seen a gap this big (it is more than 70 points!). Although admittedly, we have not seen a financial crisis this big in the past 15 years either. Nevertheless, the drop has been so steep in the past 6 months, this market is in a very oversold condition. We'll need to monitor how the market does for the rest of the week. The important levels on the top to watch out for are SPX 740 and Nasdaq 1400. The market will need to go above those levels in order to turn the daily MAs on SPX and Nasdaq. The support levels are still SPX 700 and Nasdaq 1300.
Good night and HappyTrading! ™
