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Have the Indices Stalled Out or Merely Paused?

Wednesday’s mixed session appears to be mere hesitation on the road to higher prices


So far, about 69% of the S&P 500 companies that have reported earnings have beaten analysts’ estimates. But that had little impact on trading Wednesday, as stocks meandered aimlessly for most of the day and ended the session mixed.

The flat result was caused by several blue-chip failures. Even though Apple (NASDAQ:AAPL) reported better-than-expected earnings for its fiscal Q2, analysts were disappointed over falling profit margins and a lack of new products being developed. AT&T (NYSE:T) fell after revenues failed to meet estimates and analysts downgraded the stock. And Procter & Gamble (NYSE:PG) fell almost 6% following management’s lower growth outlook.

At Wednesday’s close, the Dow Jones Industrial Average was off 43 points to 14,676, the S&P 500 broke even at 1,579, and the Nasdaq was also flat at 3,270. The NYSE traded 705 million shares and the Nasdaq crossed 440 million. But despite the flat index numbers, advancers were ahead of decliners on the NYSE by over 2-to-1, and ahead by 1.3-to-1 on the Nasdaq.

 NYSE Chart
Click to Enlarge

Trade of the Day Chart Key

Even though the major indices did little Wednesday, our trusty chart of the NYSE Composite tells a different story. The chart illustrates that the number of advancers versus decliners reported above at 2-to-1 resulted in a gain of 33 points for the index. 

It may not be a big jump in price, but it did break the index through the resistance line at 9,124 and set up a challenge to the high at 9,256 made on April 11. 

And that’s not all — a buy signal was triggered by the MACD, confirming that the index reversed from its 50-day moving average and should have sufficient momentum to exceed the April high.

Conclusion: Wednesday’s pause by the Dow and the S&P 500 appears to be mere hesitation on the road to higher prices. We’re still expecting the Dow transports to confirm the Dow industrials’ high, and the index did add 37 points Wednesday. However, it is almost 3% lower than its March high of 6,290 (chart not shown), and it could take all summer to get there.

This brings me to the subject of the success of a “sell in May and go away” strategy. Before I provide my opinion, I suggest that you read some of the opinions of our InvestorPlace experts, compiled last April, for unique perspectives on the question.

Last year, being invested during the summer turned in a flat performance for the S&P 500, with just 14 points separating the close of April from the first day of November (1,398 to 1,412).

When considering this strategy, there are a number of variables that have an impact on returns — what vehicles you invest in (stocks, mutual funds, index funds, etc.), what interest rates provide in the way of returns, and reinvestment of dividends, to name a few. I’ll provide my own analysis on the strategy tomorrow.

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.

Article printed from InvestorPlace Media,

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