Stocks stage comeback as technicals spur buying


Posted at Aug 26 2010 07:14 AM | Updated as of Aug 26 2010 03:14 PM

NEW YORK – U.S. stocks staged a comeback on Wednesday, breaking a four-day losing streak by major indexes, as key technical support triggered bargain hunting that offset weak economic data.

The S&P 500 index had sagged as much as 1% after data showed new single-family home sales slumped to a record slow pace in July and orders for manufactured durable goods rose far less than anticipated.

But positive momentum grew through the session after the benchmark S&P 500 bounced back from a breach of the 1,040 level. In the past that level has held up as support, indicating some investors may see a dip below it as a buying opportunity.

Investors who hold short positions -- those who seek to profit from declining share prices -- pushed markets higher as they covered their bets to lock in profits after the recent slump.

Technical factors played more of a role than economic fundamentals as data showed a deteriorating pace of recovery.

"Overall, this is still a very careful market," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey. "Until we see a package of decidedly positive data, this market is going to be vulnerable."

Healthcare stocks, among the least sensitive to economic swings, outperformed the overall market, while homebuilders gained despite the weak data after Toll Brothers Inc beat expectations and reported its first quarterly profit in three years.

The Dow Jones industrial average rose 19.61 points, or 0.20%, to 10,060.06. The Standard & Poor's 500 Index added 3.46 points, or 0.33%, to 1,055.33. The Nasdaq Composite Index gained 17.78 points, or 0.84%, to 2,141.54.

Coventry Health Care Inc gained 4.5% to $20.27, and the S&P health stocks sector added 1%, rebounding from a 2% loss on Tuesday.

Toll rose 5.8% to $17.13, while the Dow Jones homebuilders index gained 3.7%.

Financials also cut losses after the KBW bank index briefly hit 42.70, its lowest level so far in 2010. The index finished down 0.4% at 43.41; it has lost 6% in the last week.

The Nasdaq fared better than the other two main indexes, boosted by Apple Inc, which gained 1.2% to $242.89. Apple said it will hold a news event at the start of September, raising expectations it will unveil revamped iPod digital media players.

But the market's gains may prove to be short lived. The S&P's 14-day moving average fell below its 50-day moving average, and with both on the downside it suggested a negative short-term trend.

"It doesn't change my view that at least in the short term, momentum is still down," said Bill Strazzullo, partner and chief investment strategist at Bell Curve Trading in Boston.

Strazzullo expects the S&P could test July's intraday lows around 1,010 and sees the index facing resistance at 1,060.

On the downside, energy shares dragged on the S&P 500 as coal mining stocks dropped on concerns that power plants would switch to natural gas from coal as the price of gas fell.

Massey Energy tumbled 3.4% to $29.14 and Arch Coal Inc dropped 1.9% to $21.98.

About 8.14 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.

Advancing stocks outnumbered declining ones on the NYSE by 1,832 to 1,167, while on the Nasdaq, advancers beat decliners 1,676 to 977.