New Money Should Be Focused on This Sector

by Sam Collins | May 6, 2013 2:33 am

New Money Should Be Focused on This Sector

On Friday, stocks rallied in response to a much better-than-expected April jobs report. The S&P 500 rose 1.1% to another new record closing high, and the Dow Jones Industrial Average gained 1% after touching a new intraday high.

The monthly jobs report showed that 165,000 jobs were added last month, which was 10,000 more than expected. In addition, the March report was revised to 138,000 from 88,000, and February was revised to 332,000 from 268,000. But some economists said that a decline in wages of 0.3% in April offset the employment gains. And the Commerce Department said that orders for manufactured goods fell 4% in March.

At Friday’s close, the Dow was up 142 points to 14,974, the S&P 500 rose 17 points to 1,614, and the Nasdaq jumped 38 points to 3,379. The NYSE traded 715 million shares and the Nasdaq crossed 408 million. Advancers beat decliners by 2.75-to-1 on both exchanges.

For the week, the Dow rose 1.8%, the S&P 500 gained 2%, and the Nasdaq jumped 3%.

05 06 13 spx 300x201 New Money Should Be Focused on This Sector
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chart key 300x84 New Money Should Be Focused on This Sector[1]

On Friday, the S&P 500 blasted to a new intraday high at 1,618, and a new closing high at 1,614. This popped the S&P 500 to the top of an intermediate bull channel that began with the breakout at 1,472 on Jan. 10.

The new high is supported by a MACD buy signal, and the momentum is so strong that the S&P 500 could even burst through the top of the channel. This unusual possibility is supported by a neutral Relative Strength Index (RSI), not shown.

A round of profit-taking would encounter first support at 1,597, then 1,593, and then the 50-day moving average at 1,557.

The intermediate goal of 1,600 has been reached, but the index is “out in the open” — meaning that there is no history of selling above current prices, and so the future top will be determined by an evaluation of prices and earnings. The current price-to-earnings (P/E) multiple of the S&P 500 is around 14. Historically, bull market tops usually occur north of 20.

05 06 13 nasdaq 300x199 New Money Should Be Focused on This Sector
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The Nasdaq has lagged the other indices but now appears to have caught the attention of big-volume buyers. On Friday, the index broke from the top of its intermediate bull channel on a continuation gap.

Like the S&P 500, the Nasdaq’s RSI is neutral, and so rather than immediately closing the new gap, it is likely that the index will continue higher as technology stocks move to the front of institutional buy lists.

Even though the all-time high is 5,133, there is not enough chart work from the current price to that top to allow for the accurate plotting of resistance zones. Thus, like for the S&P 500, there is no method to calculate a final goal. However, by subtracting the November low of 2,811 from the breakout at 3,182 (371 points) and adding that to 3,182, we calculate a tentative immediate target of 3,553.

Conclusion: Last week’s price action was very positive, confirming that the bull market is not only intact, but that a new leg up is very likely. All internal indicators are bullish, and sentiment numbers support a move higher. Group rotation moved the technology sector to the front last week, and so we should focus immediate buying on that sector.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[2].

For a list of this week’s economic reports due out, click here[3].

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2011/04/chart-key.gif
  2. click here: http://online.wsj.com/mdc/public/page/markets_calendar.html?mod=topnav_2_3024
  3. click here: http://www.briefing.com/Investor/Public/Calendars/EconomicCalendar.htm

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