I’ve got to ask why: Why did the Dow Jones Industrial Average jump to its highest close since June 2008 in the face of four clear negative indicators for the economy? They are:

1. A warning by S&P of a negative rating on U.S. Treasury bonds;

2. U.S. dollar hitting a new low;

3. Precious metals going through the roof; and

4. Crude oil blasting to $111.45 a barrel, up 2.9%.

And why would the NYSE trade just 966 million shares when the Dow hit new highs?

We recently reviewed the charts of the broad indices (S&P 500, NYSE, Russell 3000) versus the more narrowly based indices like the Dow, which measures the performance of only 30 stocks. The conclusion is clear: When the Fed pumps money into the market, the big institutional investors generally go to the highest quality stocks — the Dow industrials. And yesterday, the Dow was the only major index to break into new high ground.

The Federal Reserve Chairman of the Richmond bank said last week that despite rumors of disagreements among Fed members, QE2 buying of bonds and the injection of money into the markets would continue until the June deadline ran out. And like the cavalry riding to the rescue, what better time to boost the markets than immediately following a threat to the U.S. debt rating, which resulted in a plunge in the Dow’s stocks on Tuesday? Admittedly, that is all supposition.

The charts continue to tell the tale (note: no change of opinion from recent Daily Market Outlooks).

Yes, the Dow broke to a new closing high, but made a new intraday high by just half a point, and momentum is still negative, casting a doubt on the breakout. The intermediate trend, as shown by the red dashed line, has turned up because of the new intraday high.

The broad-based Russell 3000’s intermediate trend has not changed to up because it has not broken to new highs and the Moving Average Convergence/Divergence (MACD) is still on a sell signal. A double-top still threatens this index.

Like the Russell, the intermediate trend of the NYSE has not turned up because it, too, has not broken to new highs and its momentum is still negative. A double-top is a threat to this index as well.

Conclusion: Technically the markets look stronger, but until the broad-based indices break to a new high, they have not confirmed that the intermediate-term trend has changed to “up.”

We should therefore remain cautious of what could be a false breakout of the Dow Buyers should stick with what has worked with precious metals, oil and other commodities, and commodity substitutes, at the top of their buy list. For one top gold stock to buy now, 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.