‘Generals’ Lead the Market Charge; Should You Worry?

Advertisement

Stocks opened higher on Thursday, extending the gains from Wednesday’s breakout. The Federal Open Market Committee’s decision to continue with an easy money policy appeared to be the reason for the strong opening.

The S&P 500 rose 0.5%, and both the Dow industrials and transports rose to another new closing high, keeping Dow Theory technicians on the buy side.

The financial sector led with a 1.1% gain and is up 1.9% for the month. Biotech rose as well, with the iShares Nasdaq Biotechnology (IBB) up 0.8%.

Consumer prices, an inflation gauge and key indicator for the Federal Reserve, fell 0.2% in August from July. This was the first monthly decline since April 2013. Jobless claims fell more than expected. U.S. home construction dropped sharply in August, down 14.4% from July versus an expected decline of 6%. The Philly Fed Survey for September fell to 22.5 while economists had expected 23.5.

European markets closed higher in anticipation of a rejection by Scots of a referendum to withdraw from Britain. A vote for independence, the results of which should be announced this morning, would be viewed as an economic blow to both British and European markets.

The IPO of Alibaba Group Holding will be priced today in what is expected to be the largest stock offering in history.

At Thursday’s close, the Dow Jones Industrial Average gained 109 points at 17,266, the S&P 500 rose 10 points at 2,011, the Nasdaq gained 31 points at 4,593, and the Russell 2000 was up 5 points at 1,159.

The NYSE primary market traded over 680 million shares with total volume of 3.2 billion shares, and the Nasdaq crossed 1.8 billion shares. On both major exchanges, advancers outpaced decliners by about 1.4-to-1.

SPX Chart
Click to Enlarge

Chart Key

Large-cap stocks led the way to new highs again Thursday. After last week’s fright when the S&P 500 dropped to just above its 50-day moving average, the turnaround was a relief for the bulls.

As noted, the move higher by the “generals” (big caps) was supported by Dow Theory buy signals from the industrials and transports.

Conclusion

I am aware that some of our readers are inclined to feel more comfortable when the “soldiers” (small- and mid-cap stocks) lead the charge rather than the generals. But it should be noted that when the small caps lead with high volume spikes, this often indicates a buying climax. This situation usually doesn’t occur with the big caps since they are generally supported by institutions or, as some would say, the smart money.

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/generals-lead-market-charge-worry/.

©2024 InvestorPlace Media, LLC