Nasdaq Overbought but Could Go Much Higher

by Sam Collins | May 14, 2013 2:04 am

Stocks closed mixed on Monday with blue chips, as represented by the Dow industrials, off slightly. The U.S. dollar continued to gain against a basket of currencies on news that Chinese economic data missed expectations. As a result, materials shares were lower and Alcoa (NYSE:AA[1]) was the biggest blue-chip loser, off 2%. Health care, financials and consumer staples were winners, while Treasuries fell slightly, bringing the 10-year yield up 2 basis points to 1.925%.

At the close, the Dow Jones Industrial Average was down 27 points to 15,092, the S&P 500 was unchanged at 1,634, and the Nasdaq rose 2 points to 3,439. The NYSE traded 593 million shares and the Nasdaq crossed 367 million. Decliners outpaced advancers on the Big Board by 1.5-to-1, and decliners were slightly ahead on the Nasdaq.

Nasdaq Chart
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Trade of the Day Chart Key[2]

The Nasdaq continued its march higher following the breakaway gap in late April. Monday established another new 14-year high, and since there is so little chart action to compare it to, it is not possible to estimate a target for the move higher.

Support rests at 3,330 and the 50-day moving average at 3,272. Even though MACD is overbought, strong positive momentum could carry the index much higher.

Conclusion: Despite Monday’s pause, the overall trend is for higher prices in all indices. Group rotation remains strong. Short sellers are running for the hills, according to a recent report by Nasdaq. And even the weekend’s Wall Street Journal piece on the Fed’s contingency plans[3] to move to unwind quantitative easing failed to cause a correction.

A fundamental positive: By Friday, May 3, almost 1,700 companies had reported quarterly results and 59% topped earnings estimates, according to Bespoke Investment Group. In addition, 52% have beaten revenue estimates. Compared to prior quarters, those numbers are positive.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[4].

  1. AA:
  2. [Image]:
  3. Wall Street Journal piece on the Fed’s contingency plans:
  4. click here:

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