Why Did Super Tuesday’s Euphoria Dull?

The Dow Jones Industrial Average (NYSEARCA:DIA) closed at another record high, but the day finished with an interesting reversal as major U.S. indexes finished well off their earlier highs and bonds slumped hard, while VIX, the fear index, spiked higher. Also, margin interest remains at record highs not seen since the summer of 2007.

The Conference Board’s Consumer Confidence Index for May jumped to 76.2, beating economists’ expectations for a less-significant increase to 71.5 from April’s 68.1. It was the highest reading since February of 2008. The good news combined with a better-than-expected Case-Shiller Home Price Index to give stocks a boost, sending the Dow to its twentieth consecutive positive on Tuesday and to yet another record-high closing level. The Dow jumped by 106 points to finish Tuesday’s trading session at a new record-high closing level of 15,409 for a 0.69-percent advance.

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The S&P 500 (NYSEARCA:SPY) finished Tuesday’s session with a 0.63-percent surge to close at 1,660. The Nasdaq 100 (NASDAQ:QQQ) climbed 0.70 percent to 3,011. The Russell 2000 (NYSEARCA:IWM) jumped 1.33 percent to 997. In other major markets, oil (NYSEARCA:USO) jumped 1.26 percent to close at $33.79.

On London’s ICE Futures Europe Exchange, July futures for Brent crude oil climbed by $1.73, or 1.69 percent, to $104.35/bbl. (NYSEARCA:BNO). June gold futures advanced by 80 cents, or 0.06 percent, to $1,379.70 per ounce (NYSEARCA:GLD). Transports were parked on Tuesday, with the Dow Jones Transportation Index (NYSEARCA:IYT) unchanged from Friday’s close at $114.21.

European stocks continued to soar on Tuesday after European Central Bank Executive Board member Peter Praet explained that the ECB is ready to provide more monetary stimulus, if necessary, by cutting interest rates even further (NYSEARVA:VGK). The Euro STOXX 50 Index finished Tuesday’s trading session with a 1.46 percent jump to 2,035 — remaining above its 50-day moving average of 2,701. Its Relative Strength Index is 63.64 (NYSEARCA:FEZ).

Japan’s stock market regained some lost ground on Tuesday after some reassuring words from Bank of Japan governor Ryuzo Miyao, who confirmed that the central bank’s accommodative monetary policy will continue, despite the recent bond yield volatility. The pep talk weakened the yen and sent stocks soaring. The Nikkei 225 Stock Average rebounded 1.20 percent to 14,311 (NYSEARCA:EWJ). A weaker yen results in more-competitive prices for Japanese exports in foreign markets (NYSEARCA:FXY).

In China, financial stocks led a rally after the China Association for Public Companies promoted an initiative to improve the dividend tax situation for listed companies. The Shanghai Composite Index jumped 1.24 percent to 2,321 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index rose 1.05 percent to 22,924 (NYSEARCA:EWH).

Technical indicators reveal that the S&P 500 remains above its 50-day moving average of 1,594 after closing at 1,660 — as bears hope that we could be watching the formation of a head-and-shoulders pattern, which would signal a decline. Its Relative Strength Index climbed from 61.61 to 65.03. Although both the MACD and the signal line continue soaring above the zero line (suggesting the likelihood of a further advance) the MACD has assumed a downward trajectory and has now crossed below the signal line, suggesting the likelihood of a decline.

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For the day, all sectors were negative, except for the utilities sector, which sank by 1.16 percent. The energy, financial and healthcare sectors led the group, with advances in excess of one percent.

Consumer Discretionary (NYSEARCA:XLY): +0.97 percent

Technology (NYSEARCA:XLK): +0.47 percent

Industrials (NYSEARCA:XLI): +0.53 percent

Materials (NYSEARCA:XLB): +0.91 percent

Energy (NYSEARCA:XLE): +1.05 percent

Financials (NYSEARCA:XLF): +1.02 percent

Utilities (NYSEARCA:XLU): -1.16 percent

Health Care (NYSEARCA:XLV): +1.02 percent

Consumer Staples (NYSEARCA:XLP): +0.17 percent

Bottom line: Upbeat economic data sent the Dow to its twentieth consecutive Tuesday advance and a new record-high close. Nevertheless, a spike in interest rates, VIX, and a late day reversal dulled the euphoria.

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

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