Stocks forged ahead again Wednesday, taking the Dow industrials to another all-time high, but with less gusto than on Tuesday, despite a better-than-expected jobs report from ADP and Moody’s Analytics.
The jobs report showed an increase of 198,000 jobs for February, which was above forecasts and also higher than January’s report. Factory orders fell, but not as much as expected, and the Fed’s Beige Book described economic growth as “modest to moderate.”
At Wednesday’s close the Dow Jones Industrial Average had gained 42 points at 14,296, the S&P 500 rose 2 points to 1,541, and the Nasdaq fell 2 points at 3,222. The NYSE traded 683 million shares and the Nasdaq crossed 390 million. Advancers outpaced decliners on both major exchanges by about 1.2-to-1.
The basis for complaints about the unconventional breakout of the Dow and the S&P 500 with regard to volume can be seen on this chart of the SPDR S&P 500 (NYSE:SPY). Note the slope down of volume even on a breakaway gap. This is unusual since volume on a major breakout typically doubles or even triples normal volume.
The ETF and the index hit another high Wednesday, and so the low volume appears to have little impact on the continuation of the trend.
Another criticism of the breakout of the blue chips is that there has been a lack of follow-through from the small-cap and midcap stocks.
The Russell 2000 small-cap index has not yet followed through with a break of its February high, but did gap up on Monday, and received a buy signal from MACD on Wednesday.
Conclusion: The Dow is leading the parade, as it should in the early stages of a major breakout. In fact, most normal major advances start with the blue chips because confidence in a follow-through is higher in periods of economic uncertainty.
Breadth, at just 2-to-1 or 3-to-1, has not been as high as in other major advances. Technicians expect breadth to be 8-to-1 or 9-to-1. But the advance has been broad. The technology and bank stocks had been lagging, but they led on Wednesday.
The advance has been unconventional in that it lacks the volume and breadth expected from a “normal breakout.” One technician noted that it lacked “style points.” But nothing about this market has been “conventional,” and that’s because its main thrust has been the result of artificial stimulation from the Fed. However, as long as the money flows, the market will rise.
Technician Michael Ashbaugh has it right when he says, “Despite these limitations, price action trumps other indicators, and from a broad-market standpoint, all trends technically point higher.”
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.