The Dow Jones Industrial Average and its companion, the Dow Jones Transportation Average, jumped to new closing highs Wednesday, flashing a new Dow Theory buy signal. However, despite assurances by Federal Reserve Chair Janet Yellen that interest rates will remain low for an indefinite time, small-cap stocks continued to drift lower.
The Dow industrials rose to a new all-time high for the 15th time this year. The S&P 500 ended the session up 0.4% and has gained 1.1% so far in July. The Russell 2000 fell 0.2% and is off 3.3% for the month.
U.S. stocks appear to again be the investment of choice despite worries over a Portuguese bank, continued pressure on Ukraine by Russia, and the strong possibility of a ground war in Gaza.
Intel (INTC) gained 9.3% following better-than-expected earnings and a promise to add $20 billion to its share buyback plan. IBM (IBM) rose 2.1% following an agreement with Apple (AAPL) to create new business applications and sell iPhones and iPads to its business customers. Apple fell 0.6% despite what appears to be cooperation between the longtime rivals.
The NAHB Housing Market Index rose to 53 in July while analysts expected 50. Industrial production increased 0.2% in June versus a consensus of 0.4%. And producer prices rose 0.4% last month, beating expectation for 0.2%.
At Wednesday’s close, the Dow Jones Industrial Average rose 78 points to 17,138, the S&P 500 gained 8 points to 1,982, and the Nasdaq increased 10 points to 4,426. The NYSE traded total volume of 3.4 billion shares, and the Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 1.2-to-1, but on the Nasdaq, decliners led by 1.4-to-1.
The Dow industrial made another new closing high, and to the delight of Dow Theorists, the Dow transports jumped to a new closing high as well. The new immediate support for the industrials becomes the old high of 17,068, followed by a support zone from 16,715 to 16,970. That zone contains the 20-day moving average at 16,947 and the 50-day moving average at 16,781. An intermediate trendline also intersects within the zone, making it a very important technical feature that, if penetrated, would almost certainly lead to a decline.
The Dow Jones Transportation Average has been regularly hitting new highs. Wednesday’s advance, though, was special in that the industrials moved along with the transports for a very strong buy signal. And while the industrials are important, the transports are used by many economists as a predictive indicator of a strong economy.
Despite the inability of the small caps to overcome Yellen’s untimely comments about an overdone biotech sector, the new high by the two Dow indices provides a clear indication that the bull market is alive and that higher prices are in the market’s future.
With Yellen’s comments driving down biotechs — iShares Nasdaq Biotechnology (IBB) was off 2.2% on Tuesday and another 1.6% Wednesday — she may have provided fertile ground for both traders and investors who hunt in that area.
In my opinion, the Fed chair is off-base when making evaluations of specific sectors or even the stock market. Let the market be the market of free trade, not encumbered by government interference.
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.