The Nasdaq Composite is Holding All the Cards

The tech-heavy index suspiciously hit a wall on Thursday


While it may not have been an impressive move, the market (most of the indices anyway) just logged its fifth straight daily gain, further solidifying confidence in a rally that’s now a month old. Low unemployment claims were widely cited as the reason for the bullish move, though truth be told, it was most likely lingering euphoria spurred by Wednesday’s dovish words from Fed Chairman Janet Yellen that deserve the credit. Whatever the cue, the momentum is at the market’s back, and looks as if it could be for a while.

The leading sector for the day was, surprisingly enough, utilities with a 0.8% advance. The biggest loser on Thursday was the technology sector, which fell 0.2%. This was mostly thanks to the 2.2% dip (AMZN), as investors didn’t seem to be impressed by its newly unveiled 3D smartphone.

The real winner on Thursday was gold, which soared — albeit it on a delayed basis — on the possibility of Yellen fostering an environment conducive to inflation. The SPDR Gold Shares (GLD) jumped 3.5%, though it is largely overbought as a result.

At Thursday’s close, the S&P 500 advanced 2.5 points (0.13%) to 1,959.48, the Nasdaq Composite fell 3.5 points (-0.08%) to 4,359.33, and the Dow Jones Industrial Average was up 14.84 points (+0.09) to 16,921.46.

Advancers on the NYSE outpaced the decliners, 1.34-to-1, while the Nasdaq reported more losers than winners at a ratio of 1.23-to-1. The Big Board’s up/down volume ratio ended the session at 1.3-to-1, while the Nasdaq saw nearly even levels of bullish volume and bearish volume. Total volume was nominal.

SPX Chart
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Chart Key

Broadly speaking, the undertow still looks bullish. The S&P 500 made a record high for the 21st time this year on Thursday, recovering from an intraday pullback that the bears could have exploited if they wanted to. They didn’t exploit it though. Instead, they folded halfway through the session and handed the reins over to the bulls again. The upward momentum is visibly clear, but for those traders who need a specific technical trigger, the S&P 500’s MACD lines flipped into the bullish position on Thursday.

So the market is off and running? Not quite.

Nasdaq Chart
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It was mentioned yesterday that the Nasdaq had not yet hurdled the prior peak of 4,372, and would need to do so before the budding uptrend had fully gelled. As of Thursday, it still hasn’t happened. The index peaked at 4,372 before rolling back to its close of 4,359. It could be a coincidence, but it’s equally likely traders are concerned the Nasdaq just doesn’t have the right stuff right now to continue higher.

Conclusion: The bigger tide is still bullish, though the bulls still have some work to do before traders can afford to place any blind trust in the rally. Namely, the Nasdaq needs to clear 4,372 before the bulls can justify becoming overly excited.

This presents something of a problem, in that stocks are overbought in the very near term and there may not be a lot of room left for more immediate upside. Ironically, the bulls’ best outcome here is for all the indices to pause for a bit, regroup, and then resume the uptrend. Barring that, the S&P 500 is headed straight for a zone of resistance between 1,975 and 2,000 that could inspire a profit-taking pullback.

In other words, pacing is becoming an issue here. If the pace of progress doesn’t slow soon, the rally is apt to flame out just a couple of percentage points above current levels.

This is a fuzzy picture, as things usually are when stocks are at key inflection points.

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.

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