End of the Market Slump: Here’s How it Happened

Thursday’s better-than-expected report on initial unemployment claims ended the stock market’s three-day slump.

The stock market headed back into positive territory on Thursday after a three-day slide. A lower-than-expected increase in unemployment claims brought the four-week-moving average down to 335,500 — its lowest level since November of 2007. Initial unemployment claims increased by 5,000 to 333,000. Surprisingly, the news did not spark a sell-off by those fearing that the report would encourage the Federal Reserve to begin the taper of its bond-buying in September.

The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 27 points to finish Thursday’s trading session at 15,498 for a 0.18 percent advance. The S&P 500 (NYSEARCA:SPY) rose 0.39 percent to close at 1,697. The Nasdaq 100 (NASDAQ:QQQ) advanced 0.37 percent to finish at 3,130. The Russell 2000 (NYSEARCA:IWM) climbed 0.49 percent to end the day at 1,049.

In other major markets, oil (NYSEARCA:USO) fell 0.46 percent to close at $36.84. On London’s ICE Futures Europe Exchange, September futures for Brent crude oil declined by 74 cents (0.70 percent) to $105.45/bbl. (NYSEARCA:BNO). December gold futures advanced by $26.70 (2.08 percent) to $1,312.00 per ounce (NYSEARCA:GLD). Transports accelerated during Thursday’s session, with the Dow Jones Transportation Average (NYSEARCA:IYT) climbing 0.73 percent.

In Japan, stocks sank as the yen strengthened to 96.22 per dollar just before Thursday’s closing bell in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average took a 1.59 percent nosedive to 13,605 (NYSEARCA:EWJ).

In China, stocks declined slightly as anxiety about Friday’s release of industrial production and inflation data overshadowed news that the official trade balance report beat expectations of a 2.5 percent increase in exports. On a year-over-year basis, July’s exports surged 5.1 percent and imports jumped 10.9 percent. Economists were anticipating a 2.5 percent increase in exports and a rise in imports of just over one percent. The Shanghai Composite Index dipped 0.09 percent to close at 2,044 (NYSEARCA:FXI). Nevertheless, Hong Kong’s Hang Seng Index advanced 0.31 percent to finish the session at 21,655 (NYSEARCA:EWH).

The major European stock indices exhibited a stronger response to China’s trade balance report. European investors took the report as a signal that the health of the global economy is not as bad as many had feared (NYSEARCA:VGK).

The Euro STOXX 50 Index finished Thursday’s session with a 0.80 percent surge to 2,816 – climbing further above its 50-day moving average of 2,690. Its Relative Strength Index is 67.75 (NYSEARCA:FEZ).

Technical indicators reveal that the S&P 500 rose further above its 50-day moving average of 1,651 after finishing Thursday’s session with a 0.39 percent advance to 1,697. At this point, bears are hoping to see the formation of a head-and-shoulders pattern on the S&P chart. Its Relative Strength Index rose from 57.51 to 60.35. After edging above the signal line, the MACD has dropped back down below it, suggesting a decline.

For Thursday, all sectors were in positive territory. The materials sector led the group, with a 1.48 percent jump. The healthcare sector was the laggard, advancing only 0.04 percent.

Consumer Discretionary (NYSEARCA:XLY): +0.67 percent
Technology: (NYSEARCA:XLK): +0.33 percent
Industrials (NYSEARCA:XLI): +0.46 percent
Materials: (NYSEARCA:XLB): +1.48 percent
Energy (NYSEARCA:XLE): +0.55 percent
Financials: (NYSEARCA:XLF): +0.24 percent
Utilities (NYSEARCA:XLU): +0.38 percent
Health Care: (NYSEARCA:XLV): +0.04 percent
Consumer Staples (NYSEARCA:XLP): +0.53 percent

Bottom line: A better-than-expected report on initial unemployment claims, which included a drop in the four-week-moving average to its lowest level since 2007, sent the major stock indices back into positive territory on Thursday. Surprisingly, the risk that the report might encourage the Fed to taper its bond-buying in September, did not scare investors into a selling mode.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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