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Tech, Small Caps Headline February Gains

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February 27, 2015

Fresh record highs lit up the boards on Thursday, although the S&P 500 (SPX) closed a whisker in the red, weighed down by energy stocks as oil prices fell (oil’s back up today). SPX is virtually flat for the week but has gained 5.8% on the month. Major support lies at 2000, while overhead, 2122 is the next resistance line of note.

The NASDAQ Composite (COMP) may be the bigger story, up 7.6% for the month through early Friday, and the target of any bears who feel the market is beyond top-heavy. Its close at 4987 on Thursday leaves it a handful of points from a major threshold at 5,000. The small cap-studded Russell 2000 (RUT) has largely outrun the large caps, too, as its skinny 0.3% gain to 1239 on Thursday was enough for another record close for the year.

NASDAQ Composite near test of significant 5000 line

FIGURE 1: STARING DOWN 5000. The NASDAQ Composite (COMP) closes at 4,987 on Thursday, leaving it within striking distance of the psychologically significant 5000.Data source: NASDAQ. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Crude Reality. The broader stock market remains hinged to oil although possibly with increasingly muted implications. Crude at $50 has become our new gold at $1200—dancing on either side of this major psychological level. Crude bounced back some 2% early Friday from steep losses Thursday, which could lend support to the energy stocks that dented the SPX on Thursday. But caution persists as Baker Hughes will publish new drilling-activity data later. Analysts said that could weigh on U.S.-traded crude futures if it shows the decline in the U.S. oil-rig count hasn’t picked up.

GDP Haircut. U.S. gross domestic product expanded by a 2.2% annual clip in the final three months of 2014, a trim from an initial read of 2.6% but a major chop from the 5% pace in Q3 that marked the fastest U.S. growth in 11 years. The good news in the latest report is the consumer. Consumer spending jumped a revised 4.2%, down from a preliminary estimate of 4.3%. That was the largest gain since 2010. For all of 2014, the U.S. grew at a 2.4% clip. That’s a small improvement from 2.2% in 2013 and 2.3% in 2012, but still well off the historic growth rate of 3.3%. Still up: pending home sales, another piece to this tricky housing puzzle. Growth is there, just not as strong as might be expected.

On Tap Next Week: Friday’s looming jobs report will hold the market’s attention throughout the week. But in the lead-up to that report, one detail that should not be missed is Tuesday’s motor vehicle sales release. Last month, car sales were strong and most analysts pinned that number on improved job growth. Can we get back-to-back robust monthly gains? Auto industry stats show that the average age of cars on U.S. roads is at its highest in a long time. Can anyone say pent-up demand? Let’s see.

Good trading,
JJ
@TDAJJKinahan

NC
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