Dow Theorists Rejoice! We Have Confirmation

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On Wednesday, the Federal Reserve appeared to assure investors that it would keep short-term interest rates near zero for a “considerable time.” The Dow industrials responded by making a new all-time closing high, but overall gains were slight.

Despite the new high, the Dow gained just 0.2% on the day, with the S&P 500 up 0.1% and the Russell 2000 gaining 0.3%.

Most indices had flatlined before the FOMC statement, which contained little in the way of significant policy changes. The Fed did say it will end its bond-buying program in October as anticipated.

Seven of the 10 S&P sectors ended in the black, with materials in the lead, up 0.6%. The Market Vectors Steel ETF (SLX) rose 0.9%.

FedEx (FDX) jumped 3.3% on better-than-expected earnings. Lennar (LEN) led other homebuilders, up 5.8%, after an earnings best.

CPI for August fell 0.2% compared to estimates for a 0.1% gain. The NAHB Housing Market Index for September rose to 59 — 3 points above expectations. And the weekly MBA Mortgage Index jumped 7.9% versus last week’s drop of 7.2%. The current account trade deficit for Q2 narrowed slightly to $98.5 billion.

At Wednesday’s close the Dow Jones Industrial Average rose 25 points to 17,157, the S&P 500 gained 3 points at 2,002, the Nasdaq rose 9 points at 4,562, and the Russell 2000 was up 3 points to 1,154.

The NYSE traded total volume of 3.2 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by a small margin, but on the Nasdaq, advancers outpaced decliners by 1.3-to-1.

DJI Chart
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Chart Key

A coiled spring shot the Dow industrials to a new closing high with a revised target of 17,945. But please don’t ask if it will be made by year end since the previous high was made in July. I’m inclined to say yes, but it could be close.

DJT Chart
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Dow theorists are joyful tonight since the industrials and transports hit a new closing high on the same day. This is a strong confirmation of a Dow Theory bull market — a long-term prediction that the market will continue to rise.

Conclusion

After many fits and starts, the Dow Jones Industrial Average made a new closing high — its first since July. The twin highs were accompanied by a new buy signal from the MACD indicator for the transports. The MACD for the industrials missed by a fraction, but that could be triggered today.

If you are a long-term investor, this new signal is telling you that it is not too late to invest in high-quality stocks, ETFs and mutual funds.

Technically the power of a strong “V” formation should be a lesson to all chartists. Aside from the head-and-shoulders pattern, it is the most significant.

Traders, however, should remain cautious and not chase high-P/E stocks. Use support/ resistance lines and moving averages as trading guidelines. Sell into resistance lines and buy into support.

Assuming that stocks will break through resistance just because volume is high is a recipe for disaster. High volume near support often signals a selling climax, and that’s where positions should be taken.

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/2014/09/dow-theorists-rejoice-confirmation/.

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