by Sam Collins | April 9, 2014 2:39 am
On Tuesday, stocks closed slightly higher for the first time in four days. The S&P 500 gained just 0.4%, and the Dow Jones Industrial Average rose 0.1%. But the Nasdaq, which led the market on the way down, climbed 0.8%.
The Wall Street Journal blamed the recent weakness on “concerns over valuations ahead of what is expected to be a lackluster first-quarter earnings season.” Analysts at FactSet expect Q1 earnings of stocks in the S&P 500 to decline 1.3% versus a year ago.
Amazon (AMZ[1]N), Google (GOOG[2]) and LinkedIn (LNKD[3]) rose sharply after three days of being pummeled. But the biotech stocks, which also have been hit hard, failed to respond. The iShares Nasdaq Biotechnology (IBB[4]) fell 0.4%. The top performer was the utilities sector, with the Utilities Select Sector SPDR (XLU[5]) up 1.4%. Utilities are generally considered to be a defensive group purchased in times of fear.
At Tuesday’s close, the Dow Jones Industrial Average gained 10 points at 16,256, the S&P 500 rose 7 points to 1,852, and the Nasdaq jumped 33 points to 4,113. The NYSE traded a modest 733 million shares on its primary market with total volume of 3.7 billion shares. The Nasdaq crossed 2.2 billion shares. On the major exchanges, advancers outpaced decliners by about 2-to-1.
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Since early March, the Nasdaq has formed a series of lower highs and lower lows. Early in the decline, the channel that was created looked much like a bullish flag. However, after it sliced through its 50-day moving average and closed on the support line at 4,080 on Friday, it must be interpreted as a breakdown and the beginning of a rounding top. The internal indicators — MACD, stochastic and momentum — are all negative.
In contrast to other equity indices, the Dow Jones Utility Average is in a powerful uptrend. The index closed at an all-time new high Tuesday. Support rests first at its 20-day moving average at 526, then the support line at around 520, and finally, its 50-day moving average at 517.
Conclusion: The market is under the general influence of profit-taking and outright selling of high-P/E stocks, namely high-tech stocks, biotechs, small caps and high-momentum equities.
While some of these stocks are represented in the S&P 500 as well, they are the names that ran the Nasdaq and Russell 2000 to big percentage gains in February. The market is thus “Nasdaq-centric,” a term coined by my colleague Michael Ashbaugh, meaning that an upturn depends upon the recovery of those high-momentum stocks.
But there are more serious technical developments. The failure of the Dow industrials to break to new highs, missing the mark by just 2 points, resulted in a “Dow non-confirmation,” which is a serious reversal. And the S&P 500’s “key reversal day” on Friday is another negative for the bulls.
If the S&P 500 can hold support at 1,850 and stay above its 50-day moving average at 1,840, then the bulls have a chance of turning the market positive. But in light of the mediocre rebound on Tuesday, elect to stay in cash until the technical picture turns positive.
To see a list of the companies reporting earnings today, click here[7].
For a list of this week’s economic reports due out, click here[8].
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