A surge of buying in the session's final minutes juiced the markets Friday and could set a test for next week's trading.
(Friday Market Close) The markets did it! They opened the session today on solid ground and actually stayed there. What’s more, they even managed to close at session highs, sending all three major benchmarks into positive terrain—something that looked pretty iffy early on.
The Dow Jones Industrials ($DJI) finished higher by almost 1.4% while the S&P 500 (SPX) did better, up 1.6%. But it was the Nasdaq Composite (COMP)—the biggest laggard throughout most of this week—that appeared to steal the show, settling even higher, up nearly 1.8%. Looking even more unusual for this week, the markets saw a burst of buying activity in the last hour of trading to further juice the close.
The SPX might be worth taking a closer look at today. Throughout much of the week, the SPX was holding at the 2,700 level, unable to finish above it. Not today. At its 2,740 closing level, it might be setting itself for a test next week to break that 2750 resistance level.
As noted here many times this month, volatility was at play. Wall Street’s worry metric, the Volatility Index (VIX), tumbled nearly 12% today, settling at 16.49 as it broke through support levels. Could this be another test next week? Could it go down to the 15.5?
It’s unclear what motivated the market merriment, but some analysts suggested that the Federal Reserve’s dovish tone might have had some impact. In its semiannual monetary policy report, the Fed pointed to an upswing in inflation toward the end of the year, but didn’t suggest that it would prompt a more aggressive monetary policy, meaning that it’s still, at least for now, on track for three rate hikes this year. It stuck to its belief that inflation would hit or come close to its 2% goal.
That might also have had some impact on the 10-year notes, which rose today, pulling yields down. The 10-year yield fell to 2.87%. Remember that prices and yields run in opposite directions.
Oil prices also held on to gains, scoring their second straight week of gains as they continued to scrape back from the month’s earlier sell off. West Texas Intermediate crude oil (/CL), the U.S. benchmark, climbed 1.2% to $63.53 a barrel, crawling back toward that $66.66 52-week high. For the week, it rose 3.3%.
FIGURE 1: VOLATILITY IN PICTURES.
It’s all right here: The last three weeks of volatility, as shown in the VIX bar chart, best reflects what traders have been dealing with in recent weeks. Remember that brief spike on Feb. 6? The VIX is calmer now, still up from the tight ranges it was in earlier this year and most of last year, but some 67% lower than that peak. Might it test new levels next week? Data sources: CME Group, Standard & Poor’s. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Good Trading, JJ @TDAJJKinahan
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