Market Approaching Critical Resistance

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On Thursday, the release of minutes from the Federal Reserve’s September FOMC meeting showed uncertainty over the nation’s growth and a rate hike this year.

All but one member voted against an immediate interest rate increase as the central bankers expressed concern over low inflation. Stocks rallied following the news.

The Fed said its 2% inflation target may not even be hit by the end of 2018. Therefore, a rate hike could be put off until next year.

The European Central Bank (ECB), in a similar move, stressed the need for more stimulus in order to avoid a slowdown in growth. The Stoxx Europe 600 index closed 0.2% higher.

Alcoa Inc (AA) kicked off the unofficial start to Q3 earning season when it reported after the close. The company missed analysts’ estimates by a wide margin and fell in after-hours trading.

All 10 sectors of the S&P 500 closed in the green after spending most of the day in the red prior to the Fed’s meeting notes.

Crude oil jumped 3.4% to $49.43 a barrel. Gold dropped 0.4% to $1,144.70 an ounce.

The U.S. dollar fell to a six-week low against a basket of currencies after the Fed minutes. The euro was up 0.3% at $1.1128.

At Thursday’s close, the Dow Jones Industrial Average gained 138 points at 17,051, the S&P 500 rose 18 points to 2,013, the Nasdaq added 20 points at 4,811, and the Russell 2000 was up 11 points at 1,163.

The NYSE Composite’s primary exchange traded almost 1 billion shares with total volume of 3.9 billion. The Nasdaq crossed almost 2 billion shares. On the Big Board, advancers outpaced decliners by 3.5-to-1, and on the Nasdaq, advancers led by 1.8-to-1.

IWM Chart
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Nasdaq Chart
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Chart Key

Both the small-cap Russell 2000, as evidenced by the iShares Russell 2000 Index (ETF) (IWM), and mid-cap Nasdaq gained strength Thursday. This coincides with similar gains by the Dow and S&P 500 following the Fed’s non-action.

Conclusion

When it comes to the markets, we must accept what is and not what we think it should be. But as the major indices make a run at important resistance lines, it is not only important what stocks do but how they do it.

If block-buying declines, that is a sign of institutional malaise. However, if volume increases, then the overhead resistance could fall.

I am very aware that the market is not doing what I thought it would. But I also notice that traditional institutional favorites are not advancing. This tells me we are still in the midst of a short-covering rally with low institutional buying.

We are approaching critical lines of resistance, which should tell us whether buyers are strong enough to punch prices to new highs. The AAII Sentiment Survey is beginning to pick up bulls, and that’s a sign of weakness.

Again, it’s not only important what the market does, but how it does it. Cash is still king.

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/2015/10/daily-market-outlook-market-approaching-critical-resistance/.

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