Market Stages a Dramatic Reversal, but Don’t Get Too Comfortable

by Sam Collins | November 29, 2012 2:22 am

Market Stages a Dramatic Reversal, but Don’t Get Too Comfortable

Stocks opened lower Wednesday, but a more optimistic attitude on the budget agreement by both parties resulted in the biggest reversal in weeks. The outlook seemed in sharp contrast to comments by Senate Majority Leader Harry Reid on Tuesday that had driven stocks lower.

And prices reacted favorably to signs that the Fed would continue to buy bonds next year. The Fed also released its October Beige Book, which showed a modest increase in growth in seven districts. Weakness in Philly, New York, and Boston was attributed to Superstorm Sandy.

At Wednesday’s close, the Dow Jones Industrial Average gained 107 points at 12,985, the S&P 500 rose 11 points to 1,410, and the Nasdaq was up 24 points at 2,992. The NYSE traded 711 million shares and the Nasdaq crossed 425 million. On the Big Board, advancers led decliners by 2.3-to-1, and on the Nasdaq, advancers were ahead by 1.6-to-1.

11 29 12 spx 300x217 Market Stages a Dramatic Reversal, but Don't Get Too Comfortable
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chart key 300x84 Market Stages a Dramatic Reversal, but Don't Get Too Comfortable

Wednesday’s reversal from the low of the day at the S&P 500’s 200-day moving average is a positive. The bulls also have to like the strong MACD buy signal and the close above the breakdown line at 1,403. The next resistance is at the 50-day moving average (blue line) at 1,423, which matches the April high at 1,422.

11 29 12 nasdaq 300x216 Market Stages a Dramatic Reversal, but Don't Get Too Comfortable
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The Nasdaq reversed from its 20-day moving average at 2,935 and closed 6 points higher than its 200-day moving average. If it can hold above 2,986, then the next resistance is at the 50-day moving average at 3,030. There is a broad area of support at 2,840 to 2,890. Like the S&P 500, the advance is supported by a MACD buy signal.

Conclusion: The bulls have to be pleased by Wednesday’s technical picture. The S&P 500 had an intraday reversal from its 200-day moving average, barely closing above the breakdown line at 1,403 — all of this following a strong buy signal last week from the MACD indicator. And the Nasdaq’s reversal from its intraday low at the 20-day moving average is equally impressive.

However, the dramatic reversals were triggered by news that the politicians were getting along better with their negotiations to avert the fiscal cliff. Since it was only one day before these reversals that negative comments by the Senate majority leader led to a sharp sell-off, we must conclude that the stock market is less influenced by technical factors than political ones. Therefore, we should expect the unexpected as the headlines will likely continue to dictate price movement. Be careful, it’s a jungle out there.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[1].

For a list of this week’s economic reports due out, click here[2].

Endnotes:
  1. click here: http://online.wsj.com/mdc/public/page/markets_calendar.html?mod=topnav_2_3024
  2. click here: http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

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