U.S. stocks opened slightly higher on Friday, but it has been a week of selling, especially on the close of the day session. Revised fourth-quarter GDP remained unchanged at 2.2% and quarterly corporate profits fell for the first quarter since 2008. Fed Chair Janet Yellen will speak this afternoon.
By Vikram Rangala
Friday, March 27, 2015
The S&P 500 opened up 3 points at 2,059.28. The Dow Jones Industrial Average started up 26 points at 17,704 and the Nasdaq Composite began up 20 points at 4,884 after the opening bell. Stocks have since risen and then dropped in a range around the opening price.
While MarketWatch cites analysts' worries about the drop in corporate profits, I still think the drop this week is part of the end-of-quarter rebalance. I discussed this regular event earlier this week. Large funds and institutions sell stocks at the end of the quarter, to lock in profits and shed losers from their portfolios.
One sign that this is happening are the large (half a billion dollars or more) market-on-close sell orders in the stock index futures. For a variety of reasons, depending on the fund's strategy, they will sell futures contracts along with individual equities.
Another sign that this drop is contained and going according to a plan comes from technical analysis of the chart. Prices stopped at a major trendline stretching back to previous highs and also reflect a 50% retracement of the last rise to recent highs.
European stocks are up today, after a mixed Asian session, with the pan-Europe Stoxx 600 up 0.6% to 396.79, led by health care, technology and consumer-goods stocks. However, the Stoxx 600 and country indexes like the DAX and CAC-40 are all down on the week after seven weeks of gains.
One reason for the pressure on European stocks is the week's increase in the euro versus the U.S. dollar. A lower euro has helped European exporters. The UK's FTSE faced a similar decline as the pound rose. Bank of England Governor Mark Carney reiterated his view that the next move in U.K. interest rates was higher.
Oil prices fell over $1.80 Friday morning, after rising 5 percent on Thursday. Air strikes in Yemen by Saudi Arabia and its Gulf Arab allies sparked fears that could world crude supplies could be blocked if the crucial Bab el-Mandeb strait was caught in the fighting.
Shipping analysts have since reassured the markets that tankers could just go around Africa, like Vasco da Gama. Moreover, all major oil importers have record reserves at this point. For now, markets seem to be less focused on the risk premium.
Stock indices, the euro, and crude oil are among the most heavily-traded contracts on the Nadex exchange. When prices are volatile and not trending smoothly, plus the news keeps alternating between bullish and bearish headlines, many traders like having a limited-risk alternative that allows them to participate in the markets without worrying about getting stopped out or getting a margin call.
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