Trend is Up, but Don’t Expect Much

The major indices spent the day in negative territory yesterday following a lower opening, which resulted from the weakness of Europe’s bourses and concern about the economic condition of Spain. Despite better-than-expected earnings from IBM (NYSE:IBM) and Intel (NASDAQ:INTC), both closed lower. But eBay (NASDAQ:EBAY) reported that Q1 earnings rose 20%, and in after-hours trading the stock was up.

But the day ended badly for the major indices with the Dow Jones Industrial Average off 83 points at 13,033, the S&P 500 off 6 points at 1,385, and the Nasdaq off 11 points at 3,031. The NYSE traded 720 million shares and the Nasdaq crossed 423 million. Decliners were ahead of advancers on both exchanges by more than 2-to-1.

Technically the major indices are stuck in a narrow trading range. See yesterday’s charts of the S&P 500, which closed 5 points under the resistance line at 1,390 with support at 1,371, and the Nasdaq, which at 3,031 is in the middle of a support zone of 3,000 to 3,042, and about 25 points above its 50-day moving average.

Dow Chart
Click to EnlargeTrade of the Day Chart Key

The Dow has the strongest chart of the three major indices. It has driven above both its 20-day and 50-day moving averages and has a strong buy from the stochastic. Yesterday it closed slightly under the 20-day, but has a broad support zone of 12,754 (July high) to 13,050. 

However, even the Dow is shaky, closing yesterday just 25 points above its 50-day moving average. A close under 13,000 would put pressure on the line at 12,754. If the index fails to move forward and meanders within the current support zone, the July line could take on even more significance – as the neckline of a head-and-shoulders formation.

For now, however, we remain bullish. Each of our internal indicators (MACD, stochastic, momentum) is positive and the trend is up. And the CBOE Volatility Index (VIX) has fallen to under 19 indicating that we should expect more of the same sideways movement. The “wall of worry” could drive you nuts.

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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