The major indexes held at critical levels on their charts, suggesting the stock market last week made nothing more than a normal pullback.

With Monday’s 1.4% gain, the S&P 500 showed once more it can count on its 50-day moving average for support. The S&P 500 bounced off that moving average multiple times this year, in January, March and May. The 50-day line itself maintains an undisturbed upward path. Its counterpart on a weekly chart, the 10-week moving average, has been rising since early November.

The Nasdaq composite rose 0.8% Monday. Despite last week’s bumpy trading, the composite never closed below 14,000, and its 50-day average was never threatened.

Monday’s trading marked a rotation back to some of this year’s norms: The S&P 500 outperforms, the Nasdaq lags and small caps beat both.

MP062121The Nasdaq, which last week made up ground on the S&P 500, is now up 9.7% for the year, while the S&P 500 is up 12.5%. The Russell 2000 rallied 2.2% and erased all of Friday’s sharp loss. It also won back its 50-day line. For the year so far, it’s up 15.8%. Cyclicals outperformed, with energy, transportation, industrials and materials sectors up more than 1.5% while consumer, health care and technology saw smaller gains.

The Dow Jones Industrial Average Monday jumped 1.8%, its best day since March 5. All 30 components rose as the Dow broke a five-day losing streak.

Unsurprisingly, volume fell from Friday, which saw heavy trading related to quadruple witching. But other market internals were positive, including a ratio of nearly 3-1 in winners to losers on the NYSE. On the Nasdaq, advancers led by about 7-5. On Friday, the Cboe Market Volatility Index shot up to the highest point in four weeks, the type of spike associated with market lows.

Stock Market Internalizes Rate Scare

The stock market last week got spooked after the Federal Reserve made a surprising forecast of two interest rate hikes in 2023. The stock market was rattled but kept its composure, keeping losses from getting out of hand.

On Monday, Fed officials gave mixed comments on rate policy. New York Fed President John Williams sounded reluctant to take away stimulus, The Wall Street Journal reported.

“It’s clear that the economy is improving at a rapid rate, and the medium-term outlook is very good,” Williams said in a speech prepared for an online appearance. “But the data and conditions have not progressed enough for the (Federal Open Market Committee) to shift its monetary policy stance of strong support for the economic recovery.”

Earlier Monday, Robert Kaplan of the Dallas Fed reiterated views that the Fed should be “doing some things, maybe, to take our foot gently off the accelerator sooner rather than later so that we can manage these risks” to avoid a sharper shift in policy down the road. St. Louis Fed President James Bullard said “the debate is open” on asset purchases. But he added that reaching a decision on tapering is not imminent, the Journal reported.

Stock Market Still Under Pressure

On Friday, IBD changed its market outlook from “confirmed uptrend” to “uptrend under pressure.” Thus, investors should remain more cautious. Having said that, growth investors are finding new opportunities.

A few health care stocks broke out of bases. Intuitive Surgical (ISRG), Danaher (DHR) and Omnicell (OMCL) broke out Monday, although volume was weak in all three.

There was a rally in firearms stocks. Smith & Wesson Brands (SWBI) shot up 18.5% to a new high. The stock broke out Friday past a 22.60 buy point after a strong earnings report. MarketSmith data shows there’s about three days’ worth of volume held short in the stock, which may be fueling its surge.

Sturm Ruger (RGR) jumped 3.6% nearly to new highs in double its average volume. American Outdoor Brands (AOUT), whose products include Smith & Wesson accessories, climbed to new highs after getting support at the 50-day line. Smith & Wesson was the top stock in the IBD 50, which rose 0.6%.

Keep in mind, the frustration for most is the short duration of price runs from breakouts. Many stocks have round-tripped gains, or just stalled in buy zones.

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Juan Carlos Arancibia is the Markets Editor of IBD and oversees our market coverage. Follow him at @IBD_jarancibia