On Monday, stocks opened higher on better-than-expected manufacturing results for September. By 11:30 a.m., the Dow industrials were up 160 points, but that was the apex of the advance.
Fed Chairman Ben Bernanke’s comments at the Economic Club of Indiana focused mainly on Europe’s problems and how “headwinds from slowing economic activity in Europe and ECB actions won’t solve the problems.” He urged Congress and the White House to do more. As a result, stocks sold off for the remainder of the day but still closed with gains.
At Monday’s close, the Dow Jones Industrial Average was up 78 points to 13,515, the S&P 500 gained 4 points at 1,444, and the Nasdaq fell 3 points to 3,114. The NYSE traded 672 million shares and the Nasdaq crossed 427 million. Advancers led decliners by 1.6-to-1 on the Big Board and by 1.3-to-1 on the Nasdaq.
Monday’s intraday high stopped short of penetrating the downtrend line of the bullish flag that has been forming since the Sept. 13 breakout. By advancing Monday from the support line at 1,438, the index confirmed the positive breakout at 1,418, telling us that despite the short-term correction, the overall trend is intact.
The support line at 1,438, which appeared minor last week, has taken on new importance since the solid red intermediate trendline now intersects the horizontal support line exactly at Monday’s close.
Conclusion: Dwelling on the support lines of the S&P 500 tends to have threatening overtones, and so Monday’s advance was just what the doctor ordered. Monday’s high at 1,457 touched the bullish flag’s resistance line. Bulls should focus on this line as a trigger point to enter the market again. A break above that line would put immediate pressure on the high at the top of the flag and probably attract more institutional volume.
There is no doubt that institutional volume, encouraged by the Fed’s QE Infinity plan, has been behind the breakout. And the recent AAII report that bearish sentiment rose to its highest level since July 26, confirms this since the survey is a contra-indicator (i.e., bearish sentiment is good for stocks). Other recent reports indicate that the public is again abandoning equity mutual funds for the safety of bonds, and that too supports the case for a bullish breakout.
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.