Even though the Dow Jones Industrial Average and S&P 500 closed down yesterday, the Nasdaq, led by the technology sector, scored a new closing high with the best stock picks. This was the first trading day this year that the Dow registered a decline.

The Dow and S&P’s decline was due to selling in the telecommunications sector, which fell 2.8%, and the retail sector, which lost 1.6%. Retail stocks have fallen for several days on reports of weaker-than-expected holiday sales. Target (NYSE: TGT) was the worst performer, off 6.8%, after reporting that December sales increased by just 1%. The Gap (NYSE: GPS) fell 6.9%, also from weaker December sales. And Macy’s (NYSE: M) lost 4%, while Kohl’s (NYSE: KSS) fell 3.1%, both from missed analysts’ expectations.

But with the New York Technology Show in full swing, the darlings of the day were in the technology group. NVIDIA Corp. (NASDAQ: NVDA) popped 14% from a move that challenges Intel Corp. (NASDAQ: INTC) and Advanced Micro Devices (NYSE: AMD). NVDA is developing its first computer processor aimed at the mainstream computing market. Intel fell 0.8% and AMD was off 2.5% on the news. But the semiconductor group gained 1.8%.

Some of the big techs were strong with Microsoft (NASDAQ: MSFT) up 2.93%, Sandisk Corp. (NASDAQ: SNDK) gaining 0.92%, and Broadcom Corp. (NASDAQ: BRCM) ahead by 2%.

In economic news, the weekly jobless claims report rose just slightly above what economists had predicted, but was a big disappointment following Wednesday’s private sector jobs report showing a surge. As a result, expectations for Thursday’s report were high, and Friday’s estimate for key government non-farm payrolls was increased. All eyes will be glued to that report today, and a big miss could cause some selling.

Treasurys rose on Thursday as euro zone debt problems surfaced again. The problem this time was a document released by the European Union that asks senior bond holders to share the burden of future bailouts funded with taxpayer money. The 10-year note rose 0.531% to yield 3.418%, and the 30-year bond rose to a yield of 4.534%. The euro violated its 200-day moving average briefly, falling to $1.30 before closing at $1.3015, down from $1.3155 on Wednesday.

At the close, the Dow fell 26 points to 11,697, the S&P 500 fell 3 points to 1,274, and the Nasdaq rose 8 points to 11,697. The NYSE traded almost 1.1 billion shares with decliners ahead of advancers by 1.4-to-1. The Nasdaq crossed 520 million shares with decliners ahead by 1.3-to-1.

Crude oil for February delivery fell $1.92 to $88.38 a barrel in reaction to a stronger dollar. The Energy Select Sector SPDR (NYSE: XLE) fell 65 cents to $67.79. Gold (February contract) fell to $1,371.70 an ounce, down $2, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) lost 4.85 points, closing at 210.99. The next technical support for the XAU is at 206.

What the Markets Are Saying

Following the first down day of the year, traders and investors alike will no doubt be nervous news hawks. And, as noted above, the non-farm payrolls report before the opening will be in focus. The Labor Department is expected to report a gain of roughly 150,000 jobs in December, and a dip in the U.S. unemployment rate from 9.8% to 9.7%.

With so much attention, and with the market at key breakout points, a bigger-than-expected gain could result in a huge breakout. Because once our near-term targets are achieved, there is a modest dead space in the charts, which could pop the Dow Industrials up to around 12,000.

But what if the increased estimated gains are nothing but fluff? The market could sustain a brief but nasty several days of selling, which would take the Dow to its initial support at 11,500 to 11,550.

All of our internal indicators are now at the extreme overbought level, including MACD and stochastic, while momentum is declining from its December high (not good). The one indicator, however, that is most reliable in nailing near-term overbought markets is the Relative Strength Indicator (RSI). The RSI for Dow is slightly higher than at the November high, and almost as high as the April high, while the RSI for the S&P 500 is lower than the November high but higher than the April high. For the S&P 500, April’s high on the 15th led to the top on April 26, and a plunge of almost 200 points before a bottom was made on July 1.

I’m not saying that the current conditions warrant a drop like that, but the high RSI number should caution us to moderate our most speculative urges.

The sentiment indicators are also warning us to be cautious. Here is the direct quote from AAII: “Bullish sentiment extended its streak of above-average readings to 18 consecutive weeks in the latest AAII Sentiment Survey. This is the longest such streak since 2004. The percentage of individual investors expecting stock prices to rise over the next six months rose 4.3 percentage points to 55.9%. The historical average is 39%.”

In December, I proposed that the first of the year would likely see the averages achieve the near-term objectives of Dow 11,785, S&P 500 at 1,278, and Nasdaq at 2,700 to 2,710. Those goals have been met much sooner than expected. Now we must wait for the market to tell us whether it blasts off or settles down.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.