Stocks closed Friday with the S&P 500 at a new record, the Dow Jones Industrial Average above 18,000, and the Nasdaq at a new 2015 closing high.
The conclusion of floor traders was that the United States is still the most stable of all western economies. Thus, there remains a global rush to buy U.S. securities as a “safe haven.”
Of the 10 S&P sectors, seven closed in the black with energy scoring the biggest gain, up 2.1% for the day and 2.8% for the week. West Texas Intermediate (WTI) rose 2.9% to $52.67a barrel Friday despite the 10th consecutive week of declines in rig counts.
The second best sector was materials, gaining 0.8% on Friday. Technology followed with a 0.6% advance. The tech sector was helped by Apple Inc. (NASDAQ:AAPL), up 0.5% to a weekly gain of 6.9%. The PHLX Semiconductor (INDEXNASDAQ:SOX) rose 0.7%.
Utility stocks continued to be sold with the Dow Jones Utility Average down 1.6% on Friday and off 6.8% in February. The yield on the benchmark U.S. Treasury 10-year note rose 4 basis points to 2.02%.
In economic news, the University of Michigan Consumer Sentiment Index declined to 93.6 versus an expected increase to 98.3.
At Friday’s close, the Dow Jones Industrial Average gained 47 points at 18,019, the S&P 500 rose 9 points at 2,097, the Nasdaq was up 36 points at 4,894, and the Russell 2000 gained 7 points at 1,223.
The NYSE’s primary market traded 760 million shares with total volume of 3.5 billion shares. The Nasdaq crossed 1.9 billion shares. On both major exchanges, advancers outpaced decliners by about 1.6-to-1.
For the week, the Dow gained 1.1%, the S&P 500 rose 2%, the Nasdaq jumped 3.2%, and the Russell 2000 rose 1.5%.
A glance at the chart of the S&P 500 would lead you to believe that the new high for the index was extremely bullish and that an explosive rally was about to ensue. And just going by the technicals, that appears to be what should occur.
In fact, chart-wise, the only slight negative is the somewhat overbought MACD indicator. Ignore that detail, and Friday’s rally looks like a major breakout from the resistance zone at 2,079 to 2,094.
The Nasdaq has made a remarkable recovery since the quadruple-bottom at the end of January. In retrospect, I should have taken the Collins-Bollinger Reversal (CBR) buy signals triggered on Feb. 2 more seriously, especially since “C” stands for Collins.
Conclusion
The overall bull market is definitely confirmed, but that’s not news. I’ve been saying that for the past several years. And the intermediate-term trend is again confirmed to be up, as well. However, the imponderable is the same as last week: How far up is up?
Going back to the prior “breakout” in order to examine the underlying technical condition that led to that bull trap offers little in the way of optimism.
The break occurred on Dec. 29, and was accompanied by typically low holiday volume and breadth. And even the high on Dec. 5 at 2,079 on the S&P 500 doesn’t give us much confidence since volume was low (776 million shares) with NYSE breadth at 1.8-to-1.
Art Cashin, director of floor operations for UBS Group AG (USA) (NYSE:UBS), had a perspective that is traditional but also enlightening. He said: “Europe must deliver and the S&P must HOLD above 2,093. A breakout is not a one-day event. You must close above the necklines (breakout lines) for 2 to 3 days and then consolidate before we move higher.”
He added that world events still don’t support higher prices, and Janet Yellen’s appearance before Congress on Feb. 24-25 adds another element of uncertainty. What will she say with regard to raising interest rates?
But the bull market has fought a tough battle against heavy odds and risen to new highs — and that’s a big plus in favor of higher prices. It’s called momentum, and momentum is strong.
The “wall of worry” is getting higher, but so are stocks prices. So, at the current level, Cashin’s advice should not be ignored. As I said before Friday’s breakout, it would not be wise to hock the farm and commit everything to stocks.
Traders should continue to trade support/resistance lines, and intermediate-to-long-term investors should take limited positions in select stocks, such as those on my Trade of the Day buy list. Using caution and common sense with protective stop-loss orders and diversification almost always results in solid returns.
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.
