U.S. markets opened higher Wednesday following the lead of European bourses, which responded to a favorable ruling from the German Constitutional Court. But like Tuesday, the gains disappeared despite two attempts to take stocks higher, and by the close, most indices were close to breakeven.
The long-awaited showing of Apple’s (NASDAQ:AAPL) new iPhone 5 resulted in a gain of $9.20 (1.39%) for the stock. Expectations now shift to the Federal Reserve, which today will announce its decision on interest rates and economic projections. Investors have been looking forward to another round of quantitative easing. The rate announcement should come at 12:30 p.m., and the economic projections at 2:15 p.m.
At Wednesday’s close, the Dow Jones Industrial Average had gained 10 points at 13,333, the S&P 500 was up 3 points at 1,437, and the Nasdaq rose 10 points to 3,114. The NYSE traded 663 million shares and the Nasdaq crossed 375 million. Advancers led decliners on the Big Board by 1.8-to-1 and on the Nasdaq by 1.5-to-1.
The S&P 500 has been acting stronger than most other indices. But for four consecutive days it has stalled at 1,438 to 1,439. This stall, after modestly breaking to new highs, is not high on the list of confidence builders.
Despite that, the MACD flashed a buy on Monday. The bull channel, which began four months ago, is still a dominant feature clearly showing its support line and 50-day moving average at about 1,390. This line should hold any initial wave of selling.
While the Dow Jones Industrial Average has inched along to a new four-year high, the Dow Jones Transportation Average has lagged. For those who are Dow Theory followers like me, this failure to confirm the industrial’s new high has not been encouraging.
However, on Wednesday, the transports pushed ahead by over 40 points, triggering a buy signal from the MACD indicator.
It would be encouraging to see a break from the six-month triangle. However, it is still a long way from the double-tops at 5,430 and 5,425 in February and March that must be overcome in order to render a Dow buy signal.
Conclusion: Stocks have been moving higher, but at a snail’s pace, encouraged by daily headlines and the anticipation of better ones to come. Now, with the German court’s decision and Apple’s announcement behind us, there is just one more shot at a heavy-duty push from the press this week.
That, of course, is today’s Fed decision on rates and a new easing program. But it is little comfort to hear that almost 90% of investors (CNBC poll) are expecting a QE3-type easing. We could be facing a classic case of “buy the rumor, sell the news.”
Again, smart investors should wait this out and buy on any extreme (5% to 10%) market correction. Traders may want to pursue short-selling strategies if the Fed’s decision produces a bounce.
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.
