Stocks opened higher Thursday, but quickly gave back the gains after the Federal Reserve’s December policy meeting minutes were made public. They indicated that several members of the board favor slowing down bond purchases and more stimulus “well before the end of 2013.”
Private-sector jobs grew in December, according to ADP. This prompted several economists to raise their employment gains for Friday’s jobs report.
At Thursday’s close, the Dow Jones Industrial Average lost 21 points at 13,391, the S&P 500 fell 3 points to 1,459, and the Nasdaq was down 12 points at 3,101. The NYSE traded 706 million shares and the Nasdaq crossed 395 million. Decliners were slightly ahead of advancers on both exchanges.
One major impact of avoiding a fall from the fiscal cliff is that the bull market in the U.S. dollar, as shown by the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP), which began in May 2011, was confirmed this week. Thursday it reversed from its bullish support line and gapped through its 50-day moving average as the MACD flashed a new buy signal. Its next resistance is at the December high of $22.02, and then the 200-day moving average at S22.23.
One of the least followed but very important indices is the NYSE Composite. While other more widely followed charts indicated that prices were stuck in a narrow trading range in December, the Composite was busy setting the stage for a massive reverse head-and-shoulders bottom.
This week, the Composite broke through resistance at 8,470 with gusto as a breakaway gap vaulted prices to a new high. Its next goal is to attack the April 2000 high at 8,678. But after that a slowdown in its advance is likely due to a one-year period of trading from 2007 to 2008 between 9,000 and 10,000.
Conclusion: The U.S. markets have had a strong start for the new year. This probably has resulted as much from massive amounts of new money pouring in from 401(k), pension plans and IRAs as from the avoidance of a financial nightmare by Congress.
But the breakout also created an overbought condition that is likely to be temporary. And Thursday’s pullback illustrates the vulnerability of short-term pops. Savvy investors and traders will wait out these conditions and use limit orders, buying on small corrections and not at the market. Timing is everything — don’t get caught chasing the crowd.
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.