Telecom and consumer discretionary stocks led the market in Wednesday’s morning session. But buying interest faded around noon, and the remainder of the day was spent taking back some of the early gains.
An area of concern — the Dow Jones Transportation Average — rose more than 57 points, taking it out of immediate danger of a breakdown and calming the fears of Dow Theorists. And Apple (NASDAQ:AAPL) rose more than 10 points, removing it from the immediate danger of a head-and-shoulders breakdown. (See Wednesday’s Trade of the Day for a review of Apple’s technical outlook.)
At Wednesday’s close, the Dow Jones Industrial Average was up 12 points at 13,495, the S&P 500 rose 6 points to 1,451, and the Nasdaq gained 15 points at 3,135. The NYSE traded 665 million shares and the Nasdaq crossed 391 million. Advancers and decliners were at breakeven on the Big Board, but decliners edged out advancers on the Nasdaq by about 1.2-to-1.
Europe has been relatively quiet recently but problems persist. The lack of unanimity between Germany and the southern European countries continues to strengthen the U.S. dollar and puts pressure on our markets to make a big advance.
In the chart of PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) we can see that the overall trend is up, while near term the buck is trading within a parallel zone. This zone represents a solid bottom that is unlikely to break in the near future. Volume is declining and a MACD buy is still in place.
These are indications that the dollar will remain strong for an indefinite period, putting pressure on commodities and U.S. stocks alike as Europe struggles to stave off a recession.
The NYSE Composite contains all of the stocks traded on the Big Board, thus it is a broad cross-section of commerce and industry. The index, like the Dow industrials and the S&P 500, broke through a major resistance line in September and is now consolidating in a flag formation.
But unlike the S&P 500 and the industrials, it failed to breach its July 2011 high. Therefore, the overall trend of the Composite is sideways with the intermediate trend still up. The MACD indicator is now oversold, and so with a flag in place (which is bullish) and the market oversold, the next move will likely be up and through the July 2011 high at 8,476.
Conclusion: The market expression, “never sell a dull market,” is usually true. If so, we must be in for one whale of a breakout. Our strategy remains the same: Buy on weakness.
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.