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Ignore the Media and Buy on Any Weakness

The financial press may be fearful, but this is one of the most energetic advances we’ve seen in months


Yesterday, the stock market consolidated the huge gains of Tuesday as analysts and investors contemplated the impact of the Federal Reserve’s latest “stress tests” of the nation’s banks. The financials had a 4% gain on Tuesday, but even news that only 4 of 19 banks fell short of the requirements set by the Fed failed to extend the advance.

Technology stocks led again, up 0.6%, with Apple (NASDAQ:AAPL) setting a record new closing high at $589.58. 

At the closing bell, the Dow Jones Industrial Average was up 16 points to 13,194, the S&P 500 fell 2 points to 1,394, and the Nasdaq gained 1 point to close at 3,041. The NYSE traded 852 million shares and the Nasdaq crossed 451 million. Decliners were ahead of advancers by over 3-to-1 on the Big Board and 2-to-1 on the Nasdaq.

Tuesday’s big break clearly established a new leg up for each of the major indices. And Wednesday’s Daily Market Outlook summarized the new breakout points as the first significant area of technical support: For the Dow that support is at 13,055, the S&P 500 is at 1,375, and the Nasdaq’s initial support is at 3,000. 

Dow Chart
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SPX Chart
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The normal method of determining resistance is to look at past resistance and support areas. For the Dow, the next peak is the mid-December 2007 high at 13,563 to 13,575. And for the S&P 500, it is the peak of late May 2008 at 1,440. 

And for the Nasdaq? The index has already sliced through the important resistance zones of 2007, and going back further has diminished value. Most of the stockholders of that period have disposed of their holdings. Thus this method has little significance in determining a meaningful target for the Nasdaq. Tomorrow, we’ll use other methods to try and narrow down future targets. 

Don’t take Tuesday’s breakouts lightly with “up volume” at 93% and “down volume” at 7% on the NYSE. This is one of the most energetic advances that we’ve seen in months, thus jump on any weakness as a buying opportunity despite the seemingly overbought internal indicators and a fearful press. 

Remember: Price action always trumps other indicators, and Tuesday’s breakout was a very significant price event.

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.

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