Industrials’ Failure Close to Being Confirmed by Sell Signal

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Stocks rose Wednesday, spurred higher by Apple (AAPL) and the technology sector, but there was little in the way of corporate or economic news to drive the market.

Energy prices fell again, and the U.S. dollar strengthened against major currencies, especially the British pound. But the buck retreated slightly in the afternoon following a late poll that indicated most Scots want to stay in the U.K. The pound/dollar pair closed at 1.6210 after trading at 1.6070 in the early morning.

Biotech stocks led the market with the iShares Nasdaq Biotechnology (IBB) jumping 1.8%.

The weekly MBA mortgage index fell 7.2% following last week’s increase of 0.2%, and wholesale sales increased 0.7% in July gaining 0.4% in June.

At Wednesday’s close, the Dow Jones Industrial Average rose 55 points to 17,069, the S&P 500 gained 7 points at 1,996, the Nasdaq jumped 34 points to 4,587, and the Russell 2000 was up 6 points at 1,165. The NYSE’s primary market traded 609 million shares with total volume of 2.9 billion shares, and the Nasdaq crossed a total of 1.8 billion shares. On the Big Board, advancers slightly outpaced decliners, but on the Nasdaq, advancers were ahead by 1.6-to-1.

DJT Chart
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Chart Key

The Dow Jones Transportation Average — a key economic and technical indicator — blasted into new high ground last week at a closing high of 8,601.80. That tells us to continue to expect positive economic news through the end of this year.

But technically there is bad news, as the Dow industrials have yet to follow through with a breakout of their own. And that is a major problem called a Dow non-confirmation.

DJI Chart
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The problem of a non-confirmation is exacerbated by a new development — the turn down of the MACD indicator. I’ve said that “price trumps everything,” including our indicators. However, we now have a situation where the industrials are failing to break out, and that failure is very close to being confirmed by a sell signal on the MACD.

Yet, even if the Dow declines, it probably won’t fall very far since there is massive support from its 50-day moving average at 16,911 to about 17,000.

Conclusion

The Dow’s failure to confirm is a technical issue that must be resolved with a breakout by the industrials if the overall market is to move higher, and I believe it will be.

Even though small-cap stocks have lagged over the past month, they have recently been outperforming the large caps. This recent phenomenon is contrary to this year’s history, which was highlighted by Jeff Saut: “Screening the Raymond James research universe of 1,025 stocks shows that the average stock has declined by ~23.3% from its respective 52-week high… So what we have been experiencing is an internal correction while the major market indices hover near their highs.”

He also correctly points out that the small caps usually top out first, followed by mid caps, and eventually the big caps, leading to a 10%-plus correction.

I would, however, point out that the Nasdaq (mid caps) has appreciated by 5.4% since Aug. 1 compared to just 3.5% for the Dow industrials (big caps). In other words, while the generals led for the first seven months of the year, the soldiers are now moving to the front lines. And that is very good news if it continues.

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/industrials-failure-close-confirmed-sell-signal/.

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