by Sam Collins | July 17, 2014 2:25 am
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[1]) gained 9.3% following better-than-expected earnings and a promise to add $20 billion to its share buyback plan. IBM (IBM[2]) rose 2.1% following an agreement with Apple (AAPL[3]) 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.
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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.
To see a list of the companies reporting earnings today, click here[5].
For a list of this week’s economic reports due out, click here[6].
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