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Can the Market Continue to Make New Highs?

Consolidation will most likely be held within a narrow trading range


There was almost no follow-up yesterday to Monday’s blast to new highs by the leading sectors. Instead, traders were more defensive, buying issues that failed to participate in Monday’s rush to buy. 

The March Consumer Confidence Index showed an expected modest decline. Until the last hour, most indices were at a flat line, but late selling brought about across-the-board losses.

At the close, the Dow Jones Industrial Average fell 44 points to 13,198, the S&P 500 fell 4 points to 1,413, and the Nasdaq lost 2 points at 3,120. Volume on the Big Board totaled 730 million shares, and 415 million traded on the Nasdaq. Decliners exceeded advancers on both exchanges by about 1.5-to-1.

SPX Chart
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Trade of the Day Chart Key

The S&P 500’s chart, with its tiny dot for yesterday’s trading, illustrates the flat markets following the new high on Monday. And the stochastic buy signal is still in force.

UUP Chart
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The biggest threat to our current domestic market is the position of the U.S. dollar. While last fall there was much talk about replacing the dollar as the world’s standard trading currency, lately there has been no discussion of doing so. Thus, the dollar, as evidenced by the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP), has stabilized at its 200-day moving average and bullish support line.  

The next move for the buck will probably be up, and so the inverse relationship between the dollar and stocks could result in a minor consolidation of the equity markets.

Even so, the greenback is technically stuck in a very narrow trading band between $21.80 and $22.18. This too supports the view that any equity consolidation will most likely be held within a narrow trading range.

VIX Chart
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The action, or better said, the non-action of the CBOE Volatility Index (VIX) also supports the view that equities will continue to consolidate or move higher. The VIX appears stuck in the identical range as we saw in April to July.

We should therefore expect the major indices and especially the technology sector to continue plowing into new high ground. But May is approaching, and those who ascribe to the simple strategy of “Sell in May and Go Away” could again turn out to become the best market timers of the year.

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,

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