Market Fails to Penetrate Important Resistance

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On Friday, stocks sagged after Thursday’s 1.5% surge following the European Central Bank’s decision to buy 50 billion euro ($58 billion) in bonds per month. However, despite Friday’s loss of 0.6%, the S&P 500 gained 1.6% for the week.

The possibility of instability in Greece following Sunday’s elections hung over the market. Additionally, the overthrow of a U.S.-friendly regime in Yemen, the death of the king of Saudi Arabia, and an escalation of fighting in Ukraine added to investors’ anxiety.

A slowdown in Q4 2014 earnings created new economic uncertainty, especially following Q3’s earnings, which grew 8.3% over the prior year. FactSet released the figures after 82 companies of the S&P 500 had reported earnings.

United Parcel Service, Inc. (UPS) fell 9.9% following disappointing Q4 earnings, and FedEx Corporation (FDX) dropped 3% from the residual impact. Starbucks Corporation (SBUX) rose 6.6% after reporting stronger holiday traffic and sales. And General Electric Company (GE) rose 0.8% on a better-than-expected Q4 earnings report.

Existing home sales increased 2.4% in December to 5.04 million, while analysts expected 5.08 million.

U.S. crude futures fell to an almost six-year low at $45.59 a barrel. Gold futures lost 0.6% at $1,292.60 an ounce, and the yield on the 10-year Treasury note fell to 1.82% from 1.90% as investors continued to flee to the safety of bonds and the U.S. dollar.

At Friday’s close, the Dow Jones Industrial Average was off 141 points at 17,673, the S&P 500 fell 11 points to 2,052, the Nasdaq rose 7 points at 4,758, and the Russell 2000 lost 1 point at 1,189.

The NYSE’s primary market traded 785 million shares with total volume of 3.6 billion shares. The Nasdaq crossed a total of 1.6 billion shares. Block trades on the NYSE fell to 4,919 from 5,602 a week ago. On both major exchanges, decliners outpaced advancers by 1.3-to-1.

For the week, the Dow rose 0.9%, the S&P 500 gained 1.6%, the Nasdaq jumped 2.7%, and the Russell 2000 rose 1%.

S&P 500 Chart
Click to Enlarge

Chart Key

This chart of the S&P 500 illustrates the narrow range of trading that has developed. Short-term support is at the 50-day moving average at 2,047, and resistance rests at 2,063 to 2,064.

The resistance line has been attacked four times in January without a single penetration. Thus, it represents an important line that the bulls must not only penetrate but finally close above with impressive breadth and volume if the rally is to continue.

So far, the attacks on the line have failed, and several days ago the stochastic — an effective short-term indicator — began to become overbought as it closed in on its late-November sell signal.

Conclusion

It is not so surprising that the stock market has rallied but that it has not yet broken its overhead resistance. Usually when there is a plethora of bad news and the market pays little attention to it, plugging along higher, it is recognized as an indication of a charging bull.

However, when it moves up on good news (Thursday’s ECB plan) and down on bad news (Friday’s news enumerated above), and the stochastic, falters, we consider this an indication of a very tired bull.

If it turns out that Europe’s central bank stimulus fails to have the positive impact on stocks like the Federal Reserve’s QE program, then the market may be heading lower.

Nevertheless, I will close with a quote from another veteran of the market’s battles, Sy Harding: “So enjoy the continuing roar of the bull, but make sure you’re looking through the windshield at what may be coming, and not through the rearview mirror at what has been.”

What is coming may not be positive enough to attract enough buyers to break the major indices from their current lethargy.

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/2015/01/daily-market-outlook-sp-500-fails-break-resistance/.

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