The Dow Jones Industrial Average ended yesterday at its highest level in almost four years, but on very low volume. The trading day started with a modestly higher opening due to progress toward a second bailout for Greece (we’ve heard that before).
But better U.S. economic numbers in the form of lower jobless claims, an improvement in January housing starts, a slight increase in producer prices, and a strong improvement in the Philly Fed Survey for February, enticed buyers to drive the major indices higher.
At the close, the Dow was up 123 points to 12,904, the S&P 500 rose 15 points to 1,358, and the Nasdaq gained 44 points at 2,960. The NYSE traded 805 million shares and the Nasdaq crossed 496 million. Advancers were ahead of decliners on both exchanges by almost 3-to-1.
The uncertainty of Greece’s ability to meet the demands of the eurozone nations has created an unusually volatile currency market. Skepticism by European politicians and currency traders has resulted in an unpredictable market that has a reverse influence on our stock markets.
Yesterday, the U.S. dollar lost ground, which had a positive impact on stocks, but is difficult to measure. The overall trend in the dollar via the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) remains up, but it is interrupted with sell-offs like the “twin Vs” and yesterday’s 8-cent loss. UUP held at its 20-day moving average but could decline to its 200-day moving average at $21.80, thus pushing stocks higher.
Click to EnlargeAlthough some technicians are of the opinion that 1,356 is the most important resistance number for the S&P 500, I maintain that a band of resistance exists between 1,356 (the July high) and the May high at 1,371.
Thus, yesterday’s close above the lower barrier is no guarantee that the higher number will give way. If the index has the power to breach the May high, we will know soon. But the low volume of the advance, coupled with extremely overbought internal indicators, like the stochastic, warn me to be cautious.
It was pointed out by technician Michael Ashbaugh that Apple (NASDAQ:AAPL) accounted for almost 50% of Nasdaq’s move down on Wednesday. The implication is that without Apple the Nasdaq would have had a plus day on Wednesday instead of a minus. On Thursday, Apple recovered $4.54. So should we then disregard that as well and not count Nasdaq’s new high? And what of Apple’s influence on the S&P 500 and Nasdaq since December? Should we adjust each index for AAPL’s 33% run from late December. I think not.
Conclusion: A move to higher prices appears under way, but the overall market advance is not clear enough to immediately jump aboard (low volume, oversold internal indicators, plus very odd price action with limited leadership). If the near-term correction is over there will be plenty of time to jump aboard the northbound train.
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.