Expect Profit-Taking Before the Next Push Higher

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Wednesday’s trading was flat, even though the Dow Jones Industrial Average squeezed out a new record high. Both the S&P 500 and Nasdaq closed slightly lower as investors clung to every word spoken by Fed Chair Janet Yellen for clues to the timing of a future rate hike. But nothing emerged from her congressional testimony that hadn’t been said on Tuesday before the Senate Banking Committee.

Pharmaceutical and especially biotech stocks remained strong with an emphasis on M&A. Canadian Valeant Pharmaceuticals Intl Inc (NYSE:VRX) announced it is buying Salix Pharmaceuticals, Ltd. (NASDAQ:SLXP) for $10.1 billion. And Pharmacyclics, Inc. (NASDAQ:SLXP) said it is considering a sale. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) has risen 5.5% so far this month.

Hewlett-Packard Company (NYSE:HPQ) fell 9.9% following a disappointing quarterly report in which earnings fell by 4.1%. And Chesapeake Energy Corporation (NYSE:CHK) lost 9.6% after missing earnings expectations and saying it would scale back rig operations to the lowest level since 2004.

Crude oil rose 3.5% to $50.99 a barrel. Gold futures gained 0.3% to $1,201 an ounce.

New home sales fell 0.2% in January from December.

At Wednesday’s close, the Dow Jones Industrial Average rose 15 points to 18,225, the S&P 500 fell 2 points to 2,114, the Nasdaq lost 1 point at 4,967, and the Russell 2000 gained a point at 1,235.

The NYSE’s primary market traded 705 million shares with total volume of 3.3 billion. The Nasdaq crossed 1.8 billion shares. On both major exchanges, advancers outpaced decliners by 1.2-to-1.

Nasdaq Chart
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Chart Key

A minor reversal occurred on the Nasdaq on Wednesday when the index made a new 14-year intraday high but closed lower. Momentum is sagging as illustrated by the downtrending MACD.

Nevertheless, this index of mid-cap stocks will probably continue to the 5,000 area after a mild round of profit-taking.

Dow Jones Transportation Average Chart
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The Dow Jones Transportation Average just can’t seem to muster a high-volume challenge to its Nov. 28 high at 9,310. Despite the twin buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR), in December and February, the transports are losing momentum as the MACD indicator illustrates.

Conclusion

The stock market has clawed its way higher despite news that in prior years we would have expected to stop it cold. This is commonly called “climbing the wall of worry,” and it is one of the strongest indicators that a bull market is in progress. However, when good news is treated badly, watch out because some profit-taking is about to occur.

This week, we had several pieces of good news. The financial crisis between Greece and the EU was put off for four months, and Janet Yellen indicated that the Fed is being “patient” with regard to raising rates. But with two pieces of good news under its belt, the market went flat — not a favorable near-term sign. And volume and breadth numbers remain uninspiring.

Thus, short-term and intermediate-term traders should abide by our resistance and support lines from the sell side until this near-term problem is resolved.

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/2015/02/daily-market-outlook-expect-profit-taking-next-push-higher/.

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