On Friday, stocks traded flat for most of the day but ended in a crescendo of buying that sent the S&P 500 to a new record close. The Nasdaq closed at another 13-year high and the Russell 2000 also set a record high.
Concerns for the economy caused by a drop in durable goods orders and disappointing jobs numbers led investors to conclude that the Federal Reserve will continue to pump money into the economy through its bond purchasing program. Many money managers believe that the Fed’s bond buying will continue not only into 2014 but possibly even longer.
Some industry giants posted strong earnings. Microsoft (MSFT) rose 6% after beating estimates, Amazon.com (AMZN) jumped 9.4% after reporting a slimmer loss than predicted and higher revenues than expected, and small-cap Zynga (ZNGA) rose 5.5% after posting a smaller-than-expected loss.
At Friday’s close, the Dow Jones Industrial Average gained 61 points to 15,570, the S&P 500 rose 8 points to 1,760, and the Nasdaq was up 14 points at 3,943. The NYSE traded 687 million shares and the Nasdaq crossed 512 million. Advancers exceeded decliners on the Big Board by 1.4-to-1, but on the Nasdaq, decliners were ahead by 1.1-to-1.
For the week, the Dow rose 1.1%, the S&P 500 gained 0.9%, and the Nasdaq was up 0.7%.
The S&P 500 has confirmed a break to a new high by exceeding the high made on Tuesday at 1,759.33. Immediate support is at Wednesday’s low of 1,740.
More importantly, Friday’s close provides evidence that the advances above the bullish channels of the more speculative indices (Nasdaq and Russell 2000) may be the start of an acceleration of the bull market’s advance.
A downside reversal under 1,740 would negate that view. But support is close at hand at the 20-day moving average at 1,709 and the 50-day moving average at 1,687.
The Dow industrials appear to be making a serious attempt at a new high. The target is 15,710 (September high) and the close that day at 15,677. Immediate support is now at the psychological round number of 15,400, just above the 20-day moving average at 15,218 and the 50-day moving average at 15,176. Neither MACD nor RSI are overbought, and so the Dow’s rally should continue this week.
Conclusion: The bull market appears to be picking up momentum with the S&P 500′s confirmation of a new high and the Dow Jones Industrial Average’s serious attempt at a new high. And the break above the Nasdaq’s channel top (see Nov. 24 Nasdaq chart) is now appearing more like a breakaway gap that could eventually set up a new channel with a steeper angle.
The possibility of a correction from current levels is diminished by last week’s new highs. However, until the patterns are confirmed, new positions should only be taken in stocks that are clearly outperforming their peers. Those appearing in the Trade of the Day are examples of the type of stocks that meet this high standard.
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.