Stocks traded in a narrow range yesterday with minimal news from Europe and mixed results fromU.S.companies’ earnings reports. Initial unemployment claims fell by 12,000, which slightly beat expectations but did little to move the market from its lethargy. However, there are several groups of stocks that are still hot and we will take a look at them from the viewpoint of technical analysis.
At the close, the Dow Jones Industrial Average fell 9 points to 12,707 for its fifth loss in six sessions. The S&P 500 added 1 point, closing at 1,326, and the Nasdaq gained 11 points to close at 2,860. The NYSE traded 810 million shares and the Nasdaq crossed 487 million. Advancers were ahead of decliners by about 1.4-1 on both exchanges.
This familiar chart of the Nasdaq shows that the bearish resistance line drawn from the May and July 2011 highs has been penetrated. All that remains for the Nasdaq to break out is to close above those highs at 2,888 and 2,879. Note the new stochastic buy issued on Wednesday.
The Nasdaq 100 has not only broken out, but yesterday its stochastic flashed a new buy signal even at this lofty level. The Nasdaq 100 consists of the largest domestic and international non-financial securities listed on the Nasdaq. Its major industry groups include computers, computer software, telecommunications, retail/wholesale trade and biotechnology. It does not include banks, investment companies, etc.
ETF buyers are able to buy the Nasdaq 100 through the fund commonly referred to as “the Qs,” the PowerShares QQQ Trust (NASDAQ:QQQ). This chart almost precisely tracks the Nasdaq 100, but it contains an additional piece of information not shown there — volume.
Note that the volume on this breakout is relatively low compared to the seller-dominated volume from August to December. This is not as perplexing as it seems — the sellers have been overcome and the public has yet to believe that a breakout has taken place. There are mostly just buyers in the market. Like the Nasdaq 100, there are no banks or investment companies in this ETF
The drag that the bank sector has had on the market is illustrated by the sharp angle of decline of a bank-only fund, the SPDR S&P Bank ETF (NYSE:KBE). However, starting in January, the negative impact of the bear market in the banks subsided as they broke through both the bearish resistance line and the 200-day moving average. Note the new stochastic buy signal issued yesterday and the close above the 20-day moving average.
Conclusion: The banks have to yet overcome potential selling, but the trend has changed, and as long as they remain positive, or even flat, the removal of the negative pressure that they have exerted should result in a break to new highs by first the Nasdaq and then the other indices.
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.