The DJIA flirted all of Friday just shy of a new five-year high, but its trading range of only 36 points showed a lack of enthusiasm, and the index closed just four points below its highest level since December 2007. It had a big run at the close, jumping more than 25 points in minutes, but that was attributed to Friday being an options expiration day.
Two positive economic reports aided the advance: The Leading Indicators for July rose more than expected, and the Michigan consumer-sentiment index for early August modestly beat estimates.
At the close, the DJIA was up 25 points at 13,275, the S&P 500 gained three at 1,418, and Nasdaq gained 14 points to close at 3,078. The NYSE traded 674 million shares and Nasdaq crossed 427 million. Advancers were ahead of decliners by about 1.7-to-1 on both exchanges.
The DJIA missed a new five-year high by just four points on Friday, but it wasn’t as close as it looks, as a buy program in the last 90 seconds of trading popped prices by about 13 points.
Even though the Russell 2000 (small-cap index) broke from a triangle that has restrained prices since June, the index lags the big caps by a wide margin. On Friday, it barely topped June’s closing high of 808 and is more than 25 points from the high for the year made in March at 846. The Russell’s stochastic as well as other internal indicators are grossly overbought.
Conclusion: As a general rule, it is prudent to give the nod to price action, which has been bullish. The major indices appreciated by more than 9% since the lows of June 4. Nevertheless, Friday’s trading range of just 36.47 points was the narrowest in almost three years. Volume remains low, even for a low summer average, and breadth remains very tight. Most important, from the viewpoint of a Dow technician, the non-confirmation of the Industrials and Transportation indices is a real problem.
Even if new highs are made by the S&P 500 and the DJIA, it is advisable to stay on the sidelines and keep stops within 2% of current prices. The upturn is on thin ice — a very uncomfortable place to be in August.
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.