Although stocks spent most of Tuesday on the minus side, the indices closed only slightly lower. The Dow industrials were off 0.1%, and the S&P 500 fell 0.3%. The selling was attributed to uncertainty over the future of the Federal Reserve’s $85 billion-a-month bond-buying plan.
Decisions made during the Fed’s two-day meeting will be made public this afternoon around EST.
The consumer price index (CPI) was unchanged in November versus an expected increase of 0.1%, but core CPI, which ignores food and energy costs, rose 0.2%. The National Association of Home Builders housing market index jumped to 58 for December from 54 in November versus an expected rise to 55.
At Tuesday’s close, the Dow Jones Industrial Average was off 9 points to 15,875, the S&P 500 fell 6 points at 1,781, and the Nasdaq fell 6 points to 4,024. The NYSE traded total volume of 3.3 billion shares and the Nasdaq crossed 1.9 billion. Decliners were ahead of advancers on both exchanges by about 1.2-to-1.
The Nasdaq has been in a powerful bull market for all of 2013. Again and again, the index found support on its bullish support line and its 50-day moving average. Our internal indicators, which are useful for trading and major trend changes, have been consistent visual aids and assisted traders who profited from buying at the support lines and selling at the resistance lines.
The chart of the Russell 2000 small-cap index is similar to that of the Nasdaq. Small-cap and mid-cap stocks led the advance for the entire year. Note how the major bullish support line hugged the 50-day moving average through five corrections since April.
Conclusion: The Dow industrials and S&P 500 have lagged the advance of the small-cap and mid-cap indices, but they too are in bull channels and powerful bull markets.
The clearly defined channels of the two charts above could not be more graphic in their upward direction. And there is absolutely no indication that the trend has changed. A series of higher highs and higher lows equals a bull channel — period.
These charts represent the opinion of millions of active investors who have put their money to work. Some are traders, but most are long-term institutional investors with an emphasis on the word “institutional.” And most institutional investors are buying stocks for mutual fund portfolios and pension plans owned by small investors.
My advice to traders who attempt to capture the hills and valleys of the major trend: Most profitable trades are made by those taking the side of the major trend. Traders who take a bearish stance in a bull market may occasionally make a profit, but in the long run, they will accumulate more losers than winners since they are “swimming against the stream.”
My comments today are directed at some of our readers who are on the wrong track. While many are savvy traders and investors, I note a few who are either out of the market and have missed the advance or who are bearish.
In the past week, some comments show a lack of understanding as to how to consistently make good investment decisions. For example, if the Fed tapers the bond-buying plan, bond prices will fall and interest rates will rise, which is not a good time to buy bonds. This is why I have advised our readers throughout the year to sell bonds and bond funds and buy equities.
“The trend is your friend.” I hope that I have been able to help you stick with that bullish trend throughout this year, ending it with a pile of gains.
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.