Wait for a Genuine Breakout to Buy

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On Monday, Winter Storm Juno had a negative impact on trading as many floor traders left early. The Dow was virtually unchanged, but the S&P 500 and Nasdaq rose 0.3%, and the Russell 2000 scored a gain of 1%.

Despite the pending arrival of what could be one of the worst blizzards on record, the NYSE said it would open on Tuesday and operate normal hours.

The election of the leftist, anti-bailout Syriza party in Greece didn’t appear to have much impact on U.S. stocks. And the new officials downplayed any rumors of Greece withdrawing from the EU. However, the new finance minister emphasized a move to anti-austerity and indicated that loan repayments to the EU may have to be renegotiated.

Germany’s DAX rose 1.4%, and the euro gained 0.4% against the U.S. dollar.

Crude oil fell to $45.15 a barrel, an almost six-year low. Gold futures lost 1% at $1,279.40 an ounce.

Despite the new low in crude oil, the energy sector scored a gain of 1.4% as speculators attempted to buy near what they consider to be a bottom.

After the bell on Monday, Microsoft Corporation (NASDAQ:MSFT) reported earnings that met expectations and revenue that slightly exceeded analysts’ estimates. However, the stock fell 4% in aftermarket trading due to weak Windows performance and lower-than-expected software sales.

At Monday’s close, the Dow Jones Industrial Average rose 6 points at 17,679, the S&P 500 rose 5 points to 2,057, the Nasdaq gained 14 points at 4,772, and the Russell 2000 was up 12 points at 1,201.

The NYSE’s primary market traded 785 million shares with total volume of 3.4 billion shares, and the Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 2.2-to-1, and on the Nasdaq, advancers were ahead by 1.8-to-1.

IWM Chart
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Chart Key

The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) rallied through its resistance line at $119, and so that line, along with its 50-day moving average at $117, establishes a new support zone.

The next minor obstacle is the Jan. 13 high of $119.39, and finally the all-time high at $121.41.

Conclusion

The S&P 500 failed to break from the quadruple-top described in the previous Daily Market Outlook, but it did close above its 50-day moving average for the second consecutive day — a positive.

However, the index receiving the most attention from buyers was the small-cap Russell 2000. As noted, IWM has yet to break above the Jan. 13 high, but the Russell 2000 did exceed its Jan. 13 high of 1,200.52.

This may turn out to be a meaningless bit of nitpicking if the index reverses today. The real barrier is the Dec. 31 high of 1,221.44.

It would be unusual for stocks to break to a new meaningful high without a pickup in volume and breadth. In fact, the Dec. 31 break lacked the necessary volume to maintain momentum, and IWM fell to its 200-day moving average in just six trading days.

Until I am confident of a genuine breakout, I suggest remaining on the sidelines. Traders should pursue the short side of the market, but with very close stop-loss orders in place.

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-wait-genuine-breakout-buy/.

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