Another new two-and-a-half-year high was sparked by a better-than-expected Philly Fed Survey for February that showed a greater increase in general business activity. Despite a higher CPI than expected (an early inflation warning) and slightly more initial jobless claims, an increase in business in the mid-Atlantic states brought in buyers of stocks.
Daily Stock Market News
Dow: +30 points at 12,318
S&P 500: +4 points at 1,340
Nasdaq: +6 points at 2,832
Volume and Breadth
NYSE: 881 million shares traded; advancers ahead 1.9-to-1
Nasdaq: 512 million shares traded; advancers ahead 1.5-to-1
Futures and Related ETFs
March Crude Oil: +$1.47 at $86.40 per barrel; Energy Select Sector SPDR (NYSE: XLE) +75 cents at $76.70
April Gold: +$10 at $1,385.10 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) +1.16 points at 212.56
What the Markets Are Saying
For two days we’ve been studying the internal indicator called the Moving Average Convergence/Divergence (MACD), because this is the indicator that many technicians find most significant.
Today, we’ll do our normal review of the internal and sentiment indicators on which I rely. And next week, I’ll provide a detailed study of another important technical indicator.
The internal indicators, chiefly MACD, stochastic, Relative Strength Index (RSI) and momentum are clearly overbought. But like the MACD, none has rendered a sell signal.
I use charting software that provides over 100 indicators, but I’ve selected only the above to show independently on my charts. Over decades, I’ve studied scores of programs, but found this method to be the most reliable.
A nice, but not controlling, feature of the software enables me to “ask” the program to tell me the significance of a given indicator, under current market conditions. This is what the program says about the momentum indicator for the broad-based NYSE Composite Index: “Conventional Interpretation: Momentum (208.36) is above zero, indicating an Overbought Market. Additional Analysis: The long-term trend, based on a 45-bar moving average, is UP. The short-term trend, based on a 9-bar moving average, is UP. Momentum is indicating an overbought market. However the market may continue to become more overbought. Given the 45-bar new high here this is even likely. Look for some evidenced weakness before getting too bearish here.”
I don’t always agree with the computer, but in the current market condition, I think that its pre-programmed analysis is dead right.
Now let’s consider the sentiment numbers, and for that I go to the American Association of Individual Investors (AAII) and Investors Intelligence (II).
AAII produces lots of information to help investors, and I suggest that if you are really serious about investing, you should spring for the 49 bucks a year for their “Enhanced Membership,” which is the most comprehensive service you’ll ever find for the money. You’ll get Model Portfolios of stocks, ETFs and mutual funds, a top mutual-fund guide, useful tax tips, plus 60 online stock screens. And on top of that, a subscription to “Computerized Investing Journal” with reviews of charting programs, investment analysis, and on and on.
Each week, AAII e-mails me the results of their Sentiment Survey, which is the most widely accepted sentiment indicator by technicians. It is a contra indicator — when it is bullish, we conclude that is telling us that stocks are “overbought” and, thus, bearish for the market. This week, the survey reported a 2.8% decline in bullish sentiment to 46.6%. This is the third time in four weeks that optimism has been below 50%. But bullish sentiment that stocks will rise over the next six months was above the historical average of 39% for the 28th consecutive week. Bearish sentiment fell 1.3% to 25.6%.
Conclusion: With bullish sentiment declining, the market will most likely continue to rise.
The II survey is also a contra indicator. From their latest readings of advisory letters they conclude, “We failed to note any new increase in advisor optimism. Instead we noted more and more editors expressing that we are ‘overdue’ for a correction.” The bulls contracted by just over 1% to 52.2% from 53.4% the week before.
Conclusion: Like the AAII survey, bullish sentiment is declining and, thus, the market will most likely continue to rise.
Overall conclusion: The “unusually tame” (Michael Ashbaugh’s words) condition of the market, despite upheavals in Europe, Asia and now the oil-rich countries of the Middle East, has resulted from steady Fed (QE2) buying that is designed to keep money flowing into the markets, thus thwarting the reasonable expectation of regular market corrections. When the Fed’s money stops, we will most likely experience a very sharp sell-off. The Fed has pledged to keep the flow going until early fall, and the bull will most likely continue to run for up to another six months with only minor setbacks.
It’s never this easy, and so be long, be wary, and keep your stops tight.
For a comeback stock, see the Trade of the Day.
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.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
