With No Overhead in Sight, Today is Likely to Go to the Bulls

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On Thursday, stocks rallied for the fourth straight day, driving the S&P 500 to a new all-time closing high. The index rose 0.3%, but blue chips led with the Dow industrials up 0.4%.

The gains were made despite the second lowest volume of the year, and in the face of continuing geopolitical problems in Europe and the Middle East. Fears that central bankers may announce an impending rate hike at their annual gathering in Jackson Hole, Wyo., also placed a lid on volume. Rumors of an increase as early as next April have spread, but if Federal Reserve Chair Janet Yellen fails to address the issue or talks of a longer time frame, the market could again respond favorably.

In corporate news, Bank of America (BAC) rose over 4% following an agreement with the Department of Justice to pay $16.65 billion to settle the dispute over flawed mortgage securities. The size of the settlement was a surprise, but investors apparently were pleased that the bank put the complaint behind it.

Unemployment applications fell more than expected, and sales of previously owned homes beat expectations, as well. The Philly Fed’s Business Outlook Survey increased to 28 in August from 23.9 in July, which beat expectations of a drop to 15.5. And the Conference Board’s Index of Leading Indicators increased 0.9% in July while the consensus was for a 0.6% increase.

At Thursday’s close, the Dow Jones Industrial Average gained 60 points at 17,039, the S&P 500 rose 6 points to 1,992, the Nasdaq was up 6 points at 4,532, and the Russell 2000 gained 3 points at 1,160. The NYSE’s primary market traded 566 million shares with total volume of 2.6 billion shares. The Nasdaq crossed 1.4 billion shares. On the Big Board, advancers outpaced decliners by 1.5-to-1, and on the Nasdaq, advancers were ahead by 1.2-to-1.

SPX Chart
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Chart Key

The S&P 500’s break to new intraday and closing highs catapulted the index to an uncharted zone. And what that means, even for new buyers, is that the index now lacks a pool of overhead, i.e., sellers.

VIX Chart
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The CBOE Volatility Index (VIX) popped just after the opening as traders loaded up on put options. This seems to indicate that, with the central bankers’ meeting concluding today, there was a high degree of uncertainty and also a high probability of a big reversal day. But the big pop became a bigger drop, as options traders concluded that the focus was on a new high for the powerful S&P 500.

Conclusion

The wall of worry and fear was reversed with a new closing high for S&P 500. And with the VIX closing 14.4% above July’s low, there is room for an explosive jump to more new highs.

Why? Because low volume promotes high volatility, and with the ratio of buyers to sellers high, stocks could make a big break to the upside.

Can that break be thwarted? Yes, nothing is cast in stone, but in the absence of a catastrophic failure in some geopolitical realm or a nasty central bank announcement, the chances of a breakout have exponentially increased as the wall of worry grows higher.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2014/08/overhead-sight-today-likely-go-bulls/.

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