In what has become a familiar pattern, stocks opened lower yesterday and then spent the remainder of the day making up the losses and closing with a modest gain. The day was marked by sluggish trading and low volume. But the major indices managed to close higher, and the Dow Jones Industrial Average set another closing high that was not seen since May 2008. The cautious mood was blamed on the difficulties in Greece, but a strong positive occurred when the European Central Bank agreed to include its bonds in the debt restructuring, according to the WSJ.
At the close, the DJIA was up 6 points to 12,884, the S&P 500 rose 3 to 1,350, and the Nasdaq gained 12 points to close at 2,916. The NYSE traded 765 million shares and the Nasdaq crossed 502 million. Advancers were ahead of decliners on both exchanges by about 1.3-to-1.
It has been a strong several days for the Nasdaq: First an impressive break-away gap last Friday and then adding to the advance on Tuesday and Wednesday. After the close yesterday, Nasdaq member Cisco (NASDAQ:CSCO) astounded analysts with strong sales and earnings despite doubts that the major maker of routers and switches for networks could come through with a surprise. That was quickly followed by another bone-crushing earnings report from a Nasdaq member, Akamai Technology (NASDAQ:AKAM), when it topped Street estimates for both sales and earnings by a wide margin. As noted in our Trade of the Day, AKAM soared in after-hours trading.
But with the Nasdaq’s stochastic and RSI (79.70) very overbought, it might be time to cash in on some of our profits, or at the minimum protect against a sharp correction by hedging longs with options. Check out my colleague Joe Burns for some excellent options strategies.
The Greek tragedy is prominent in the headlines again and yesterday was blamed for the stock market’s slow start. Recently the Europeans have been successful in keeping a lid on most of the potentially negative headline-generating news. But yesterday’s turn in the dollar, as illustrated by the PowerShares US Dollar Index Bullish Fund (NYSE:UUP), could give our markets a near-term jolt. Note both the extremely oversold stochastic indicator as well as a short-term buy signal from the CBR (our internal proprietary indicator). Also, UUP is approaching major support at its 200-day moving average, and that should at least slow down its recent decline.
Conclusion: Despite breakouts that tell us to expect much higher prices this year, it is time to evaluate trading positions that have run farthest in the shortest time frame. In addition to the warning flashed by UUP, the CBOE Volatility Index (VIX) rose by 0.52 yesterday and is curling upward — a sign that in the past has led to profit-taking. Raise some cash now and protect current holdings.
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.