Friday started on an upbeat note following a better-than-expected January consumer sentiment survey of 76.3 versus an expected 73.5. But the afternoon was marred by a report from Wal-Mart’s (NYSE:WMT) V.P. of Finance who, in an internal e-mail that Bloomberg picked up, said that February sales have been a “total disaster.” The stock fell to a low of $68.13, but closed at $69.30, down 2.15%.
At the close, the Dow Jones Industrial Average was up 8 points to 13,982, the S&P 500 fell 2 points to 1,520, and the Nasdaq lost 7 points at 3,192. The NYSE traded 939 million shares and the Nasdaq crossed 407 million. On both major exchanges, decliners slightly outnumbered advancers.
For the week, the Dow fell 0.01%, the S&P 500 rose 0.1%, and the Nasdaq fell 0.1%.
Last week, the S&P 500 plodded ahead, breaking to a five-year high. Initial support is now at 1,514, the low of the week, and then at 1,495, 1,475, and 1,467 (50-day moving average).
The Dow also made a new closing five-year high last week, but failed to hold above 14,000, which is a psychologically important number that has no technical significance. The first support is at the 20-day moving average at 13,910, then 13,860, and 13,653. MACD is overbought and flashed a sell signal early last week.
After much back-and-forth trading, the Nasdaq finally broke to a 12-year closing high (3,198.66) on Thursday. In order to confirm the new high, the bulls will have to follow through with another new high on stronger volume.
Initial support is at 3,196.89, then the 20-day moving average at 3,167, and the support line at 3,130.
Conclusion: Despite the negative comments from financial talking heads, the technical condition of the market remains positive. Last week, the Dow Jones Industrial Average and S&P 500 broke to five-year highs, the Russell 2000 (small caps) and the S&P 400 (mid-caps) ran to all-time highs, and the Nasdaq broke to a 12-year closing high.
However, the major indices have struggled to make those highs, and both volume and breadth remain below what is normally expected from a major breakout. Meanwhile, the minor indices have advanced with such gusto as to make their angle of advance so sharp that it is unlikely to be maintained much longer.
The internal indicators are either flat or slightly negative, and momentum is flat. Despite the lack of strongly negative signals, it is apparent that the stock market has run to a point of adequate value versus earnings and, therefore, will probably enter a period of rest around the current levels.
But on a longer-term basis, stocks are still undervalued. Zacks points out that the S&P 500’s forward price-to-earnings (P/E) ratio is about 14.3. Since the historic average P/E of the last 30 years is 16, they point out that the market is undervalued by about 10%.
Traders should be focused on the support and resistance lines for each index as a guide to their trading strategies, while long-term investors should only buy on support lines. And, unless volume and breadth expand on further new highs, investors should not place market orders, but rather exercise patience, entering limit orders at predetermined prices.
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.