Stick With the ‘Dumb Money’ for Now

by Sam Collins | March 21, 2013 2:20 am

Stick With the ‘Dumb Money’ for Now

The stock market shrugged off the “Cyprus Crisis” with all major indices gaining ground but failing to make new highs. The positive tone of the market resulted from Federal Reserve Chairman Ben Bernanke’s address during which he reiterated the Fed’s commitment of buying $85 billion in bonds each month in order to continue the Fed’s support of an economic recovery.

FedEx (NYSE:FDX[1]) fell 6.89% after missing analysts’ quarterly estimates. The drop in FDX caused a fall in the Dow transports of 0.4%. Homebuilders gained following strong earnings from Lennar (NYSE:LEN[2]), up 4.78%. PulteGroup (NYSE:PHM[3]) rose 2.69% and DR Horton (NYSE:DHI[4]) gained 4.61%. Williams-Sonoma (NYSE:WSM[5]) rose 10.26% after blowing out analysts’ quarterly forecasts.

At Wednesday’s close, the Dow Jones Industrial Average was up 56 points to 14,512, the S&P 500 rose 10 points to 1,559, and the Nasdaq was up 25 points at 3,254. The NYSE traded 673 million shares and the Nasdaq crossed 361 million. Advancers led decliners on both exchanges by about 2.5-to-1.

03 21 13 djt 300x200 Stick With the Dumb Money for Now
Click to Enlarge

chart key 300x84 Stick With the Dumb Money for Now[6]

The Dow Jones Transportation Average has led all other indices since its dramatic breakout in December. The index is followed not only by investors but economists who interpret its moves as predictive of future economic conditions. Most technicians consider this “discounting” an indication of conditions six to nine months in the future.

The index fell Wednesday, but has strong support, first at its March high of 6,170, and then the support line at 6,131, which intersects with the bullish support line. Trendline support is provided by the 20-day moving average at 6,086 and the 50-day moving average at 5,910. Even though the MACD internal indicator is hooking down and is close to a “sell,” momentum is so strong that a warning from MACD would likely lead to a consolidation rather than a correction.

Conclusion: Market breadth remains strong as sector rotation continues to indicate broad participation by all major sectors of the market. Only sentiment is lagging.

On Wednesday, Vickers reported that the sell/buy ratios for corporate insiders has been above 6.0 since February — a reading above 2.5 is considered bearish. AAII’s survey of public investors, a contrarian measure, has been more bullish for each of the last three weeks ending March 14.

The conclusion that we are due for a pause is in line then with the corporate insiders (smart money) selling, while the “dumb money” is buying.

Our internal indicators, chiefly MACD, stochastic, RSI and momentum, are mixed. I’ll continue to focus on the sentiment numbers, but we remain bullish since price always trumps other indicators.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[7].

For a list of this week’s economic reports due out, click here[8].

Endnotes:
  1. FDX: http://studio-5.financialcontent.com/investplace/quote?Symbol=FDX
  2. LEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=LEN
  3. PHM: http://studio-5.financialcontent.com/investplace/quote?Symbol=PHM
  4. DHI: http://studio-5.financialcontent.com/investplace/quote?Symbol=DHI
  5. WSM: http://studio-5.financialcontent.com/investplace/quote?Symbol=WSM
  6. [Image]: http://investorplace.com/wp-content/uploads/2011/04/chart-key.gif
  7. click here: http://online.wsj.com/mdc/public/page/markets_calendar.html?mod=topnav_2_3024
  8. click here: http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

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