There is No Guarantee of a Breakout

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Stocks opened lower Tuesday after video showed a flaming Russian jet fighter shot down by the Turkish military. This was the first time since the early 1950s a NATO member has shot down a Russian warplane.

Despite the incident and President Vladimir Putin’s termination of Russian military cooperation with Turkey, stocks recovered from the early losses. The Dow Jones Industrial Average and S&P 500 gained 0.1% for the day.

The major averages were helped by a jump in oil prices and their impact on Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX), which gained 2% and 1.5%, respectively. Crude oil rose 2.7% to $42.87 a barrel.

Investors jumped at the chance to buy gold as a hedge against further geopolitical tensions. The yellow metal gained 0.7% to $1,074.30 an ounce.

Nine of the 10 S&P 500’s sectors started in the red, but when the dust settled, six sectors were in the black. The energy sector led, up 2.1%.

At Tuesday’s close, the Dow Jones Industrial Average gained 20 points at 17,812, the S&P 500 rose 6 points to 2,089, the Nasdaq was flat at 5,103, and the Russell 2000 gained 8 points at 1,189.

The NYSE Composite’s primary exchange traded about 900 million shares with total volume of 3.9 billion. The Nasdaq crossed 2 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq, advancers led by 1.5-to-1.

Dow Jones Industrial Average Chart
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Chart Key

It has been a remarkable three months of strength for the Dow Jones Industrial Average. It now sits at its most meaningful resistance, and a line drawn from the May, June and July highs connects with the November high at the round number of 18,000.

Support is at the 200-day moving average at 17,590. Upside volume has been higher than average for three of the past eight days, and MACD is now neutral after an oversold period.

Dow Jones Transportation Average Chart
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The Dow Jones Transportation Average has also risen to its primary resistance line at about 8,300, and above it the 200-day moving average at about 8,400. But the real resistance is yet to come — the overhead from 8,400 to 8,600. Below-average volume has not supported a break above the 8,300 line. MACD is turning down, another indication of non-support.

Conclusion

The major indices, especially the Dow industrials and the S&P 500, have been much stronger and closer to a breakout than the “minor” indices. And they have moved higher despite threats from a stronger U.S. dollar, as well as huge geopolitical pressures.

All of that is very impressive, but still no guarantee of a breakout. In fact, the reason for the move higher appears to be too much money chasing too few stocks and, as noted on Friday, P/E multiples have risen to what I consider dangerous levels.

With lower volume favoring higher volatility and a pullback, I would not expect more strength this week. A major broader market breakout should include the small caps. However, if they are to participate, they must attract more buyers before the slow Christmas holiday period.

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/2015/11/daily-market-outlook-there-is-no-guarantee-of-a-breakout/.

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