Stocks traded sideways on Thursday following the Dow Jones Industrial Average’s breakout to a new closing high on Wednesday. Both the Dow and S&P 500 slipped below Wednesday’s close. The more volatile Russell 2000 showed a small loss, while the Nasdaq registered a slight gain.
The Nasdaq’s gain was the result of a rebound by Netflix (NFLX) and Facebook (FB). But trading was relatively light prior to today’s employment report, and many overseas markets were closed for May Day. Consumer discretionary stocks and utilities outperformed other sectors. The Dow Jones Utility Average is up 13% so far this year.
Consumer spending in March rose 0.9%, the biggest increase since August 2009. Initial claims increased to 344,000, which was above the consensus estimate of a 315,000 decline. Personal income increased slightly to 0.5% in March, slightly above expectations. And the ISM Manufacturing Index increased to 54.9 in April versus an expected 54.5.
At Thursday’s close, the Dow Jones Industrial Average fell 22 points to 16,559, the S&P 500 was off less than a point at 1,884, and the Nasdaq rose 13 points to 4,127. The NYSE traded total volume of 3.4 billion shares and the Nasdaq crossed 2.1 billion. On the Big Board, advancers outpaced decliners by 1.3-to-1, and on the Nasdaq, decliners led by a slight margin.
Thursday’s modest advance by the Nasdaq had several positive outcomes. First and foremost, it closed above its 20-day moving average. Its intraday high at 4,150 popped it through the lower band of resistance at 4,131 to 4,184, although it closed below the lower band.
MACD is now positive. And the reversal in April from its 200-day moving average is taking on renewed importance, especially if the index can work its way through the short-term bearish resistance line at 4,200 and the important 50-day moving average, now at 4,209.
Conclusion: Wednesday’s Dow Theory buy signal could have a positive impact on other more volatile indices. As they say, a rising tide lifts all boats.
A strong positive is that Wednesday’s disappointing GDP report had virtually no impact on the market. This is an example of bad news being ignored, and that’s very good news for the market, especially when accompanied by a Dow Theory buy signal.
Speaking of the Dow Theory buy signal, Jeff Saut of Raymond James summed it up nicely: “The stock market’s internal energy has just about a full charge. In fact, the only thing I found curious about [Wednesday's] action was that the Dow made a new all-time high, but the Russell 2000 is still 6% away from doing the same. Nevertheless, the upside target price for this move is 1,950 on the S&P 500 (SPX/1,883.95) and investors should act accordingly.”
I’m in complete agreement, and as far as a target for the S&P 500 for 2014, I’m sticking with my Jan. 9 call of 2,214.
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.