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Stocks Bounce Back as Economic Jitters Subside

Oil and gold inch cautiously higher as investors digest latest economic data

by 2/6/2014 4:19:29 PM
Stocks quoted in this article:

"After the 1,740 level held on the S&P 500 Index for the past few days, the bulls finally got to have some fun," quipped Schaeffer's Senior Technical Strategist Ryan Detrick, CMT. "If there was one problem, it was that volume was a little light. Still, with the monthly jobs data out tomorrow, it makes sense that traders weren't making any huge bets. The S&P 500 is right back up against those December lows, which held as support in late January. So that level won't go down without a fight." Meanwhile, the Dow Jones Industrial Average (DJI) gapped higher out of the gate and never looked back, closing with a solid triple-digit gain.

Continue reading for more on today's market, including:

  • Are options getting more expensive? Schaeffer's Trading Analyst Peter Bryans investigates.
  • See how Wall Street reacted to the exciting new partnership between The Coca-Cola Company (NYSE:KO) and Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR).
  • Rumors of an impending deal between Sprint Corporation (NYSE:S) and T-Mobile US Inc (NYSE:TMUS) sparked unusual activity in today's options pits.
  • Plus ... jobless claims drop, Frozen helps The Walt Disney Company (NYSE:DIS) heat up, and Olympic corporate sponsors get ready for action.
Trading Topic of the Week -- Reasons to Dodge Directional Risk: Capitalize on expected volatility spikes. There are several technical and sentiment indicators that can tell you whether a stock is on the verge of some major volatility -- including Bollinger Bands and high levels of short interest.

The Dow Jones Industrial Average (DJI - 15,628.53) was in rebound mode today, adding 188.3 points, or 1.2%, by the close to end just shy of its intraday peak. All but three of the Dow's components ended in positive territory, with The Walt Disney Company (NYSE:DIS) leading the charge, up 5.3%. AT&T Inc. (NYSE:T) paced the three decliners, down 0.3%.

The S&P 500 Index (SPX - 1,773.43) also bounced 1.2% higher today, rising 21.8 points. The Nasdaq Composite (COMP - 4,057.12) rallied 45.6 points, or 1.1%, muscling back above its 80-day moving average.

The CBOE Volatility Index (VIX - 17.23) spiraled 2.7 points, or 13.6%, lower today. Since Monday's close, the "fear gauge" has lost more than 19% of its value.



A Trader's Take:

"The bleeding has stopped, and when you consider just how quickly everyone got bearish, you have to like that," noted Detrick. "The American Association of Individual Investors (AAII) poll came out, and bulls were at their lowest level since April! Various other polls and put/call ratios are showing levels consistent with previous bottoms. Now, that doesn't mean we have to bottom, but it does set us up for some continued strength. Lastly, I'm really closely watching that 1,775 area on the S&P 500 -- site of its December lows. It would make sense that this area provides some resistance. Still, should the bulls push things again tomorrow after the jobs data -- and with some volume to boot -- that could form a very nice-looking bear trap. Everyone got all 'beared up' once 1,775 broke, then just as quickly are now vulnerable to losses on their short positions. We saw that mentality multiple times last year. Yes, this is a new year and it is anything but last year given the way it started, but the bar is much lower than it was a month ago -- that is for sure."

5 Items on Our Radar Today:

  1. Initial jobless claims declined by 20,000 to 331,000 during the week ended Feb. 1. Economists were projecting a slightly smaller pullback in first-time applications for unemployment benefits. Elsewhere, productivity among U.S. employees rose at an annualized rate of 3.2% in the fourth quarter, exceeding estimates. (Bloomberg)
  2. Dow component The Walt Disney Company (NYSE:DIS) bounced higher today following strong fiscal first-quarter earnings news. Strength in its movie studio division -- which scored a huge holiday hit with Frozen -- helped lift net income and revenue solidly above analysts' expectations. (The New York Times)
  3. A look at how American corporate sponsors are dealing with a challenging Winter Olympics backdrop.
  4. Call buyers flocked to Yahoo! Inc. (NASDAQ:YHOO) options pits to place long-term bets on continued upside.
  5. As Micron Technology, Inc. (NASDAQ:MU) tagged a new historical high, one conservative spread trader took the spotlight.

For a look at today's options movers and commodities activity, head to page 2.

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