On Thursday, the Dow industrials came within 20 points of their all-time closing high. But in the last 90 minutes, profit-taking and exhaustion took their toll and the index closed in the red.
News was positive and supported the strong open and the push to new highs. GDP was revised higher for Q4 2012, initial jobless claims fell to 344,000 versus an expected 365,000, and the Institute for Supply Management’s Chicago Purchasing Managers Index for February increased more than expected. But, the president and congressional leaders have not reached an agreement on the budget and sequestration begins today.
At Thursday’s close, the Dow Jones Industrial Average dropped 21 points to 14,054, the S&P 500 lost 1 point at 1,515, and the Nasdaq fell 2 points to 3,160. The NYSE traded over 1 billion shares and the Nasdaq crossed 557 million. Advancers and decliners broke even on both exchanges with slightly more advancers on the Big Board and slightly more decliners on the Nasdaq.
The CBOE Volatility Index (VIX) showed a spike in fear Monday, but each day since has resulted in a move to less volatility and, thus, less fear. But the jump on Thursday’s close is not bullish. Another jump today could drive stocks lower.
The Dow industrials missed a golden opportunity to confirm that a Dow Theory bull signal was flashed on the last day of February. Instead, by closing lower, the non-confirmation with the transports is highlighted again.
Also note the declining RSI while daily highs were being recorded by the index. This too is a non-confirmation, and it follows a bearish key reversal day on Monday, while forming a bearish horn.
MACD, however, is turning up and could flash a bullish signal if only the industrials could put together one powerful push higher.
The Dow Jones Transportation Average missed a new closing high but did make one last week. That push higher registers the top of a bull channel. But it, like the industrials, has a non-confirming RSI, and that clouds the advance. MACD, also like that of the industrials, is turning up — a potentially bullish development.
Despite a questionable near-term outlook, our 17-month moving average of the S&P 500 is as bullish as ever. At 1,515, it is within striking distance of a 13-year high. Even if it falls back under the weight of a near-term overbought condition, it would have to fall to 1,376 — a drop of over 9% — before flashing a sell signal.
Conclusion: The expression, “a bull market climbs a wall of worry,” has become trite. There have been countless bricks in the wall and new ones every day. Despite the naysayers, the stock market has plodded very close to new highs, and if it doesn’t achieve them shortly, then it will reach them later — but it will set new highs.
We are overdue for a mild correction, and the smart investor will have a list of stocks with buy under prices ready. There are huge reserves of institutional cash on hand that will jump at an opportunity to achieve returns greater than that offered in the fixed income markets. Be in front of the crowd that climbs the wall and don’t get left standing at the bottom.
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.