With the election, which some thought to be a major hurdle, behind us, buyers drove the S&P 500 and Dow to record highs on Wednesday. However, with the Nasdaq scoring a loss, the gains could not be called “broad based.”
Republicans won control of the Senate, and investors bid up some sectors that could benefit, such as utilities and medical equipment stocks. The iShares Dow Jones US Medical Devices ETF (IHI) rose 0.7%.
But overall, the midterm election results didn’t have much impact on stocks. One analyst termed it a “temporary boost,” and the market may have already discounted any improvements in the economy.
Groups that had big gains earlier in the year did not participate in the rally. The iShares NASDAQ Biotechnology Index ETF (IBB) fell 1.6%, and some big tech stocks also suffered losses, including Facebook Inc (FB), International Business Machines Corp. (IBM), Google Inc (GOOGL) and Intel Corporation (INTC).
Private sector payrolls rose more than expected, increasing 230,000 in October, according to ADP. The Institute for Supply Management’s reading on the U.S. service sector slowed last month, missing forecasts.
Crude oil rose 1.9% to $78.68 a barrel, and energy stocks followed, up 1.8%.
On Thursday, the Dow Jones Industrial Average rose 101 points to a record closing high of 17,485, and the S&P 500 also set a new closing high, up 11 points to 2,024. The Nasdaq fell 3 points to 4,621, and the Russell 2000 rose 2 points to 1,167.
The NYSE’s primary market traded 796 million shares with total volume of 3.7 billion. The Nasdaq crossed a total of 2 billion shares. On the Big Board, advancers outpaced decliners by 1.4-to-1, and on the Nasdaq, advancers were ahead by 1.1-to-1.
A lack of high-volume buying appears to be slowing the S&P 500’s momentum, and MACD is sagging. This is especially noteworthy on a day when the index made a new all-time high.
The next support on a pullback is at the 50-day moving average at 1,969, which coincides with its intermediate trendline. Following that, there is major support just under 1,920 at the 200-day moving average.
The Nasdaq made a new high just three sessions ago, but with little follow-through. Initial support is at the former high at 4,610 and the top of the gap at 4,575. If that fails to hold, look for a pullback to the 50-day moving average at 4,489, and then the intermediate trendline at 4,400.
Like its big cousin, the S&P 500, the Nasdaq’s momentum and MACD are falling — not what we want to see from an index that should be moving to new highs on broad breadth and strong volume.
Conclusion
With the culmination of the election and a landslide victory for a party that many feel favors Wall Street, the market did not pick up enthusiasm to buy stocks. In fact, with the two big indices, the Dow and S&P 500, making new highs while the Nasdaq and Russell 2000 sagged, the near-term trend is now in doubt.
I may be a bit early in calling for a consolidation, but I believe the evidence is showing us that buyers are few and sellers may be waiting to pounce. But our strategy is still to buy into weakness. My year-end targets remain 2,200 for the S&P 500 and 17,945 for the Dow.
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.
