Stocks ended roughly where they started on Wednesday, but in between the Dow industrials twice traded a spread from high to low to high of over 130 points.
At midday, Federal Reserve Chairman Ben Bernanke said that the Fed would extend its Operation Twist stimulus measure through the end of the year. That didn’t seem to satisfy investors who hoped that further stimulus would be announced, but the Fed said that they were prepared to take further action if needed.
Stocks immediately collapsed but rallied and then fell again late in the day. A rally in the last 30 minutes brought prices back close to even.
At the close, the Dow Jones Industrial Average was off 13 points at 12,824, the S&P 500 lost 2 points at 1,356, and the Nasdaq was up 1 point at 2,930. The NYSE traded 750 million shares and the Nasdaq crossed 419 million. Advancers versus decliners were even on the Big Board, but decliners outpaced on the Nasdaq by 1.25-to-1.
“Discounting” in technical language means that the market takes into account all information, past, present and future, and that information is reflected in the price of a stock or index.
I can’t provide absolute statistical backing for the theory, but the current run from the Dow’s support line at 12,300 certainly appears to have been fueled by expectations that the Fed would announce something with more octane than a modest extension of Operation Twist. That “discounting” appears to have run its course Wednesday with a directionless close on low volume.
The Dow, like the S&P 500 (see yesterday’s Daily Market Outlook), appears to have run out of gas at around the Fibonacci 61.8% line. For the Dow, that line is at 12,842. The close on Tuesday was 12,837. However, the Dow has cleared the resistance (now support) at 12,716, and has held for two days above its 50-day moving average (blue line) at 12,745.
Conclusion: Thus, Dow 12,716 to 12,745 represents an important support area, while resistance now rests at Tuesday’s high at 12,917 up to the line at 13,000.
As Michael Ashbaugh said, “All told, the bull/bear debate is balanced, and this isn’t an ‘all-in’ market.”
The quality of the rally has been poor with low volume and thin breadth. And our internal indicators are now overbought — note the “rolling” stochastic. In my opinion, the bull is running out of fuel. Look for the support to give way and a downside objective of 12,500.
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.
