Despite lower-to-flat economic reports, stocks had a strong day on Wednesday, breaking into levels not seen since July. After being pummeled on Tuesday, financial stocks led the market, encouraged by an earnings surprise from Goldman Sachs (NYSE:GS) and a move higher by Morgan Stanley (NYSE:MS) in anticipation of a better earnings report this morning.
The National Association of Home Builders’ January report showed unexpected gains and the highest confidence among builders since June 2007. And topping off the positives for U.S. markets, the euro had a late rally helped by a successful debt auction in Portugal and Germany.
At the close, the Dow Jones Industrial Average had gained 97 points at 12,579, the S&P 500 was up 14 points to 1,308.04, and the Nasdaq was at 2,770, up 42 points. Volume on the NYSE totaled 797 million shares, and the Nasdaq traded 520 million shares. Advancers exceeded decliners on the NYSE by 4-to-1 and on the Nasdaq by 3-to-1.
Yesterday, the major indices extended their one-month uptrend by blowing through their October highs. This unopposed attack on a significant technical barrier is almost as unusual as the sentiment readings from AAII that I highlighted in yesterday’s Daily Market Outlook.
A successful technician is neither a bull nor a bear since those terms would imply that no matter what the evidence his outlook is always skewed. To be effective he must not allow political or economic bias to interfere with the technical market outlook. Thus, our readers have observed that since late December my view of the market’s direction has gradually changed as one bearish barrier after another has fallen.
Yesterday I noted the highly unusual technical performance of the AAII indicators. Today I point to the powerful punch of the S&P 500 and Nasdaq as they easily exceeded a major technical target, their October highs.
Finally, one of the most significant barriers looms just 12 points above the close of the S&P 500 — the bear market’s major bearish resistance line at 1,320, followed by the April and June highs.
Stocks are now in the heart of the potential overhead developed from February to July 2011. Perhaps it’s time to cash in some profits, but the momentum is with the bulls. The more sensible course is to move up stop-loss orders to within 10% of your profit and try not to outguess the power of the market.
The bull is pawing the ground and its head is low — ready to charge. We will soon know whether it has the power to break through to new high ground.
If you’re looking for help making profitable trades, you may want to check out my colleague Joe Burns.
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.