Yesterday, European exchanges rose by 1% despite the failure of Portugal’s parliament to approve austerity measures and the downgrading by Moody’s of many Spanish banks. Thus, U.S. stocks opened higher and held the initial advance throughout the session, supported by a more positive outlook for technology companies while ignoring a drop in durable goods orders for February and an expected small cut in weekly initial jobless claims.
Daily Stock Market News
- Dow: +85 at 12,171
- S&P 500: +12 at 1,310
- Nasdaq: +38 at 2,736
Volume & Breadth
- NYSE: 869 million, decliners ahead 2.1-to-1
- Nasdaq: 521 million, advancers ahead 1.8-to-1
Futures & Related ETFs
- May Crude Oil: -$0.15 at $105.60; Energy Select Sector SPDR (NYSE: XLE) +$0.28 at $77.99
- April Gold: -$3.10, settled at $1,434.90; PHLX Gold/Silver Sector Index (NASDAQ: XAU) -$1.69 at $215.77
What The Markets Are Saying
U.S. stocks followed the European bourses in a rally that took the Dow Jones Industrials and the S&P 500 above their 20- and 50-day moving averages. Even the recently highlighted Russell 3000 closed above the two major barriers leaving just Nasdaq still trailing. But yesterday the Nasdaq outperformed the other indices with a 1.41% gain, which is more than double the advance of the Dow.
The question is this: Is the Nasdaq being bought by “smart buyers” or by speculators who are chasing lower-quality stocks at the tail end of a rally? Volume, at just 521 million shares, would suggest the latter. But all three indices have turned neutral for the short term as they enter the major overhead created from late January through the middle of March.
Our internal indicators have turned stronger with MACD flashing a buy signal on each of the major indices. But the two stochastics are approaching overbought levels, and momentum also turned to “overbought” yesterday.
Sentiment Indicators have turned higher with the AAII Sentiment survey at 37.7% bullish, up 9.2% from last week, while the bearish reading fell 5.2% to 35%. The overall numbers are relatively bullish for the market since the average bullish reading over many years is 39% and the average bearish reading is 30%. But the large increase in bulls in just one week should cause hesitation at these lofty levels. And our other sentiment gauge, the Investors Intelligence Advisors Sentiment has moved down to 50.6% from 52.2% while the difference between the bulls and bears is now 28.2% and that too is moving in a more bullish direction.
The fear of nuclear meltdowns and widespread destruction and death in Japan, along with continuing political chaos and war in the Middle East, have not deterred stocks from bouncing from their lows of just seven sessions ago to the middle of major resistance. Perhaps profit taking will put a damper on the rally, and the resistance from Dow 12,000 to 12,300 will put a halt to the current advance. But a close above 12,300 would turn the technical picture strongly in favor of the bulls.
As noted yesterday, it is not unusual for stocks to have a strong bounce following a sharp decline. And the Fed’s continuing supply of funds from Q2 has again had a positive impact, but until the bulls can decisively close above the 50-day moving averages of the S&P 500, now at 1,305.20, and the Nasdaq, now at 2,743, we must assume that the bears are still in charge.
The big “I”, INFLATION, is the key to further major advances since it will drive all assets higher. But if it is coupled with a declining economy with resulting STAGFLATION, the world’s stock markets could be headed for a decline. It is tempting to guess which way this will go but prudent to wait for the future direction to reveal itself.
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If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
