The Dow Jones Industrial Average (DJIA) finished the day with a gain of 168 points or 0.72%. That is pretty impressive, especially when you consider how the index extended already was.
The problem is that the DJIA is the most misleading of all the major indices. It is a price-weighted index, which means the higher the price of a component, the more it influences the index. 3M (MMM) , priced at around $230, had a huge impact on the index today as it gained nearly 6%, but General Electric (GE) , which has a larger market cap, had almost no impact although it lost 2% because it has one-tenth the weight of MMM due to its low price. (General Electric is part of TheStreet's Action Alerts PLUS portfolio.)
Breadth of the Dow components was about even, but because of good earnings from just MMM and Caterpillar (CAT) , the index had a large gain. The S&P 500, which is cap-weighted, had positive breadth but only managed a small gain of 0.17%
Overall breadth was just slightly positive and there was some mixed action, but two stocks in the DJIA gave it a very different feel. The news media have always used the DJIA as their main proxy for the stock market, so it has a great influence on sentiment.
If we forget the DJIA nonsense, it was essentially a flat day. A few stocks, especially the FAANGs, bounced back from poor action yesterday, but there was quite a bit of churning. Market players are waiting for earnings reports to determine their next move and not doing too much right now.
There are some subtle shifts occurring as pure momentum cools and market players are looking harder for the stocks that may move on earnings. There is rotation out of groups like biotechnology and we need to be more selective with our stock picking.
Have a good evening. I'll see you tomorrow.