Global events, rather than U.S. economic reports and company earnings, moved the markets higher on Thursday for their best day in two weeks. Spain announced its 2013 budget, which included cuts but no tax hikes, and China moved to add liquidity to its banking system.
Markets also received a mild boost from jobless claims, which fell to the lowest level since July. But they appeared to ignore a Commerce Department report that revised its Q2 economic growth down to 1.3% from 1.7%, and that in August sales of previously owned homes fell while economists had predicted an increase.
At Thursday’s close, the Dow Jones Industrial Average was up 72 points to 13,486, the S&P 500 rose 14 points to 1,447, and the Nasdaq rose 43 points to 3,137. The NYSE traded 634 million shares and the Nasdaq crossed 406 million. Advancers exceeded decliners on both exchanges by just under 3-to-1.
As discussed in recent Daily Market Outlooks, the major indices have broken out of important resistance to multi-year highs. And this week, as anticipated, each index has pulled back and is in the process of testing the support immediately above the major breakout point, which for the S&P 500 is at 1,418.
On this last day of the month and quarter, anything can happen as institutions do some “dressing up” of their portfolios. And so I will expand the normal chart of the S&P 500 to magnify the various support zones and technical characteristics of the chart so that our readers can get an inside look at what is happening technically.
First, note the intermediate support line drawn with an upward trending solid red line. This is a major support line, and it should hold as it has on three occasions.
Above it are trading zones and a flag. The flag is green and is bullish, almost always pointing in the opposite direction of the next important move. It is pointing down, thus we expect that prices will eventually punch through its top at about 1,460.
Within this structure are two other lines, the resistance at 1,450 and the support at 1,438. These lines form a narrow trading zone in which Thursday’s close terminated at the top of that zone.
Finally, in order to reverse the short-term correction, momentum must turn up. Currently, it is two bars down, which is normal for a bullish correction — note the four bars down at the end of August.
Conclusion: Traders should copy this magnified chart of the S&P 500 and follow the market using the various characteristics as trading posts — buying on support and selling on resistance. Long-term investors should focus on the breakout line at 1,418 and the intermediate support line at 1,430-plus as buy points.
Have a happy last day of September. Next month ends with Halloween — the traditional time for those who sold in May, and let the market get away, to reverse course and become fully invested.
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.