It May be Better to Sit This One Out

by Sam Collins | August 10, 2012 2:14 am

After starting lower, prices recovered Thursday, but only back to the breakeven line. Domestic news was positive with initial jobless claims lower than expected, and the U.S. trade deficit falling to its lowest level since 2010. There was no market-sensitive news from Europe, but many still anticipate that a QE type program is in the wind.

At Thursday’s close, the Dow Jones Industrial Average was off 10 points to 13,165, the S&P 500 gained less than a point at 1,402, and the Nasdaq gained 7 points to 3,019. The NYSE traded 576 million shares while the Nasdaq crossed 399 million. Advancers outpaced decliners on both exchanges by about 1.25-to-1.

SPX Chart
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S&P 100 Chart
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Trade of the Day Chart Key




Thursday’s Daily Market Outlook omitted an important chart of the S&P 500, and so I’ve included it today. The point that I was making was that both the S&P 500 and the S&P 500 have a flat RSI but a sharply rising bull channel.

This is incongruous and suggests a minimum commitment by institutions. In fact, it smacks of pure “window dressing” rather than serious long-term investing. With prices close to this year’s high, it is reminiscent of May 1 when the indices failed to successfully attack the March high with a resulting loss of 10%.

The AAII Sentiment numbers were released Thursday with the headline “Optimism Tops Pessimism for First Time Since May.” Bullish sentiment jumped 6% to 36.5%. The number is still below the historical average of 39%, but the change indicates that the public is feeling more optimistic and traditionally that change has preceded a decline in stock prices.

Conclusion: Virtually all of our internal indicators (MACD, stochastic, momentum) are overbought. And the AAII report does not support a high-volume break of the March and May highs. We remain on the sidelines.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[1].

For a list of this week’s economic reports due out, click here[2].

  1. click here:
  2. click here:

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