The Dow rose 0.4% Tuesday to a new closing high. Although the index has set 36 record highs for the year, this one was special in that it cracked the psychological barrier of 18,000. The S&P 500 was up 0.2%, hitting its 51st high of the year.
The Nasdaq lost 0.3%, which was chiefly the result of a broad sell-off in biotech stocks. The iShares NASDAQ Biotechnology Index ETF (IBB) fell 4.7%.
Many traders have attributed the rise in stocks to an easy-money policy by the Federal Reserve. However, the Commerce Department reported that U.S. Q3 GDP grew at an annual rate of 5%, the strongest pace in 11 years. Economists expected 4.3% GDP growth.
The Energy Select Sector SPDR ETF (XLE) jumped 1.2% as crude oil futures settled 3.4% higher at $57.12 a barrel. Gold futures lost 0.2% at $1,177.90 an ounce.
U.S. consumer sentiment hit its highest level in nearly eight years this month.
New home sales in November fell to 438,000, down from a revised October reading of 445,000 and below analysts’ expectation of 460,000.
At Tuesday’s close, the Dow Jones Industrial Average gained 65 points at 18,024, the S&P 500 was up 4 points at 2,082, the Nasdaq fell 16 points to 4,765, and the Russell 2000 gained less than a point at 1,202.
The NYSE traded total volume of 3 billion shares. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 1.8-to-1, but on the Nasdaq, there were just slightly more advancers than decliners.
The new high by the S&P 500 confirms the recovery and break from the 2,020 line. The high was also supported by a new MACD buy signal.
Initial support is at the 20-day moving average at 2,050, and then the much-discussed line at 2,020. The target for the break is 2,140.
The Dow’s new high was also supported by a buy signal from its MACD. The fact that the index broke through 18,000 has no technical significance other than another new high, but it does provide some psychological support for higher prices. The target for this breakout is approximately18,500.
Conclusion
The major indices broke to new highs on low holiday volume and mediocre breadth. But the bulls can rejoice and look forward to higher prices before Dec. 31.
However, at the risk of being labeled a Grinch, I refer you to the pattern of December 2013. On Dec. 31, the Dow made a new closing high following a major advance in November. But the year started off poorly, culminating in a 326-point sell-off on Feb. 3.
Are we being set up for the same bull trap? The similarities are too close to be ignored with a new high late in December and a P/E of 16.5 on the S&P 500 versus 16 last December.
The market is now extended and vulnerable to a correction. January often starts strong and ends weak. I’m not predicting that it will occur exactly as it did last year — stocks rarely make the same move twice. However, the knowledge that there is a strong possibility of a round of profit-taking early in 2015 should alert our readers to the need for good risk management as we enter January.
I wish you all a very Merry Christmas and a prosperous New Year!
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.
