Stocks Keep Climbing as Key Chart Level Holds

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Stocks bounced at a key level last week as volatility keeps falling despite a lack of good news.

The S&P 500 rose 1.2 percent between Friday, March 22, and Friday, March 29. The index just finished its best quarter in almost a decade, up 13 percent, after climbing for three straight months.

Two key things are also happening on the chart. First, the S&P 500 rebounded after testing the psychologically important 2800 level. Everyone previously talked about that line as key resistance, but now it’s become support. Price action like that is seldom bearish.

Second, the 50-day moving average is about to rise above the 200-day moving average. Known as a “golden cross,” the pattern seems to have a strong track record of anticipating increases in the market.

S&P 500 chart with 2800 level and key moving averages. Notice "golden cross" is about to occur.
S&P 500 chart with 2800 level and key moving averages. Notice “Golden Cross” is about to occur.

Interestingly, few positive catalysts seemed to justify the buying. Consumer confidence, for instance, missed the mark as Americans perceived cracks in the rock-solid labor market. Fourth-quarter economic growth was also weaker than initially estimated.

Perhaps even worse, the Brexit quagmire in Europe showed no sign of resolution. That left two of the world’s largest economies on pace for a potential hard, unplanned, split on April 12.

Lyft Boosts Sentiment

One big story was Lyft’s (LYFT) initial public offering (IPO). The shares priced 6 percent above their initial range, and then surged an additional 9 percent once trading began. Now attention turns to Uber’s (UBER) IPO later in April.

Banks were among the top gainers last week as the industry bounced from an historic bloodletting the previous week.

Retailers were another strong group, lifted by some strong quarterly reports. Biotechnology also gained after an advisory group backed the takeover of industry heavyweight Celgene (CELG).

Retail Names Ride High

Industrials were the best-performing major sector last week, despite anxieties toward the economy. Meanwhile the laggards were safe havens like gold miners and utilities. Is that a sign of optimism deeper beneath the surface?

Two lesser-known retail stocks were the S&P 500’s top gainers on the week: auto dealer Carmax (KMX) and apparel company PVH (PVH). Both advanced at least 13 percent on strong earnings.

CarMax (KMX) chart with 50- and 200-day moving averages.

Nielsen (NLSN), on other hand, plunged 12 percent after The New York Post reported the media-rating firm may not get acquired as expected. Cardiac-device maker Abiomed (ABMD) fell a similar amount for no apparent reason.

Economy in Focus This Week

This week’s agenda brings several important economic reports. That will likely focus attention on the strength and staying power of growth in the U.S.

Retail sales and the Institute for Supply Management’s manufacturing index are two important items today.

Tomorrow features durable-goods orders. Will last year’s surge in business spending return, or has that trend already run its course? Ailing pharmacy giant Walgreen Boots Alliance (WBA) reports earnings as well.

ADP’s private-sector payrolls are due on Wednesday morning. ISM’s non-manufacturing activity index and crude-oil inventories follow later in the morning.

Initial jobless claims are the main item on Thursday. Then the big kahuna of the week will be non-farm payrolls on Friday morning.

Apart from those events, traders should be on the lookout for news involving Brexit and President Trump’s trade talks with China. Both could produce market-moving headlines at unpredictable times.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.