There’s Only One Thing Missing From the Market’s Bullish Picture

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Despite another new closing high for the Dow industrials, the broad market closed mixed on Friday. The main reason for the advance was the Federal Reserve’s continuation of its easy money policy.

Investors also were pleased that Scottish voters decided to stay with the U.K., ending months of uncertainty over the issue.

The center of attention on the trading floors was no doubt Alibaba’s (BABA) IPO. The shares were offered at $68 and soared 38% to close at $93.89. Yahoo (YHOO) fell 2.7% despite being one of BABA’s biggest stakeholders and earning about $5.1 billion on the offering.

Caterpillar (CAT) was the weakest of the 30 Dow stocks, falling 1.8% after it said sales for the June-to-August period declined 10% year over year.

Leading indicators for August showed an increase of 0.2 %, but analysts had expected 0.4%.

At Friday’s close, the Dow Jones Industrial Average gained 14 points at 17,280, the S&P 500 fell 1 point to 2,010, the Nasdaq was down 14 points at 4,593, and the Russell 2000 fell 12 points at 1,147.

The NYSE’s primary market traded 1.8 billion shares with total volume of 4.6 billion, and the Nasdaq crossed 2.8 billion shares. On the Big Board, decliners outpaced advancers by 1.5-to-1, and on the Nasdaq, decliners were ahead by 1.9-to-1.

For the week, the Dow rose 1.7%, the S&P 500 gained 1.3%, the Nasdaq rose 0.3%, and the Russell 2000 fell 1.2 %.

NYSE Chart
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Chart Key

Despite last week’s new Dow Theory buy signals and a new high in the S&P 500, the NYSE Composite has yet to break the double top at 11,105 and 11,073. As our readers know, the NYSE is one of my favorite indicators as to the near- and intermediate-term direction of the market.

On Thursday, I said traders “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, I’d like to provide some example of selling climaxes to illustrate my point. A genuine selling climax is almost always followed by institutional bargain hunting. It is the buying that creates a major bottom.

On the chart of ASA Gold and Precious Metals (ASA), note the high-volume buying in December 2013. We may be seeing another bottom forming now.

ASA Chart
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In Avalonbay Communities (AVB), we again see high-volume buying in January 2014, plus a buy signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR).

AVB Chart
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Finally, on the chart of JCPenney (JCP), a high-volume sell-off was followed high-volume buying as institutions recognized value in the shares.

JCP Chart
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Conclusion

Most indices were strong last week with the Dow industrials shaking off their former sluggish tape action and moving to a new closing high. And the S&P 500’s year-to-date 8.9% return is terrific.

Despite the slowdown in the NYSE, my targets for this year remain S&P 500 2,200 and Dow at 17,945 (revised from 17,779 on Sept. 18).

On Wednesday, the Dow industrials broke from a cup-and-handle pattern, which was pointed out by Jeffrey Saut of Raymond James. It just doesn’t get better than that.

But I’d sure like to see the NYSE Composite, which includes the broadest base of all indices, break to a new high just to complete a perfectly bullish picture.

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/theres-one-thing-missing-markets-bullish-picture/.

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