In a rare show of resilience, stocks bagged their third straight day of gains yesterday, as bullish momentum heated up across the board. With stocks getting off to a lower start in the morning, bears had the perfect excuse to resume control, but they didn't. Buyers promptly stepped up to the plate instead, setting in motion a steady uptrend that persisted until the closing bell. The S&P 500 jumped 4.1%, the Nasdaq Composite 4.0%, and the Dow Jones Industrial Average 3.5%. Though small-caps showed slight relative weakness in the previous session, the Russell 2000 roared back with a 6.5% gain yesterday. The S&P Midcap 400 Index climbed 4.7%. All the major indices closed at their best levels of the day.
Total volume in the NYSE rose 3%, while volume in the Nasdaq increased 11%. The strong gains on higher volume enabled both the NYSE and Nasdaq to register another bullish "accumulation day," the second such instance of institutional buying within the past three days. The third of those three days was a healthy, lower volume session of price consolidation. In a very short period of time, the stock market's underlying internals, particularly the volume patterns, have turned bullish.
In the March 10 issue of The Wagner Daily, we discussed the clear relative strength the banking stocks had suddenly begun showing. Recall that the S&P 500 lost 1.0% the previous day, but the S&P Banking Index ($BIX) conversely zoomed more than 10% higher. Because the financial sector led the way lower when the overall market was selling off, we suggested the inverse would also be true, meaning that strength in financials could also precede broad market gains. Specifically, we said it would be "hard to imagine the overall stock market would not be inclined to move higher alongside of the financials, at least in the short-term." Indeed, it appears the sharp bounce in the financial arena was the initial impetus for the current rally. In the first four days of this week, the $BIX Index has logged a monstrous 48% gain! Unquestionably, that humongous bounce in banking stocks was a major factor in this week's S&P 500 advance of nearly 10%.
Yet, regardless of how impressive the current rally in banking stocks may be, it's important to realize financials were merely a beaten-down sector, bouncing off historical lows. While such action can, and often does, spark a short-term rally in the main stock market indexes, dead sectors simply cannot drive a market higher in the intermediate to long-term. For that to occur, there needs to be leadership among a few industry sectors, as well as individual stocks, breaking out to new highs. So far, that's not happening; however, leading stocks have definitely begun to act better over the past several days.
