Traders Should Book Short-Term Gains Now

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U.S. stocks surged Thursday with the small-cap Russell 2000 leading the way with a gain of 1.8%. The S&P 500 wasn’t far behind with 8 of its 10 sectors in the black and a gain of 1.2%.

Stocks leapt from the opening as upbeat economic reports from China and the euro zone surprised analysts. China’s manufacturing activity increased to a three-month high in October. While there was some weakness in Chinese output and employment, buyers seemed to take a “glass half full” approach.

U.S. stocks have been strong as a result of generally better-than-expected Q3 earnings. According to FactSet, companies in the S&P 500 are on track to report a 5.3% increase in profits in 2014.

Caterpillar (CAT) and 3M (MMM) both beat estimates and gained 5% and 4.4%, respectively. However, this was primarily the result of cost-cutting as opposed to big revenue increases.

Health care stocks were boosted by strong results from Celgene (CELG), one of my favorite biotechs, which jumped 6%. The telecom sector was unfavorably impacted by AT&T (T), which fell 2.4% after missing earnings estimates by a penny.

Weekly initial claims fell to 283,000 versus an expected 285,000. The August Housing Price Index rose by a higher-than-expected 0.5%. Leading indicators increased 0.8% where analysts expected 0.5%.

At Thursday’s close, the Dow Jones Industrial Average gained 217 points to 16,678, the S&P 500 jumped 24 points to 1,951, the Nasdaq rose 70 points to 4,453, and the Russell 2000 was up 20 points at 1,116.

The NYSE’s primary market traded 819 million shares with total volume of 3.7 billion. The Nasdaq crossed 1.9 billion shares. Advancers outpaced decliners by 3.3-to-1 on the Big Board and by 2.7-to-1 on the Nasdaq. Block trades on the NYSE were slightly more than on Wednesday, but much lower a week ago.

Russell 2000 Chart
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Chart Key

The Russell 2000 has rallied sharply from its October lows along with the other major indices. Like the S&P 500, it has so far failed to penetrate its 50-day moving average. However, while the S&P 500 surmounted its 200-day moving average on Tuesday, the Russell has been unable to do so. This must be considered a failure.

With a death cross still in place and volume lagging (though breadth is good), the overhead of possible sellers between 1,130 and 1,146 seems like a lot to overcome.

Conclusion

Even though momentum is high and MACD is bullish, the AAII Investor Sentiment Survey shows bullish sentiment has increased for four consecutive weeks and now stands at 49.69%, the highest reading since Aug. 28.

Since this is a contrarian indicator, it looks like it’s time for a pause so the bulls can regroup. Stocks don’t go up forever, and now is an opportunity for traders to cash in their short-term gains.

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/2014/10/traders-book-short-term-gains-now/.

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