The major indices closed with their fourth consecutive gain on Friday, but it wasn’t all easy going. The Dow Jones Industrial Average opened at its high of the day, but spent the remainder of the session drifting lower until just before the close when buyers hopped on blue chips, raising the index 0.4%.
One of the reasons for weakness was that Egan Jones lowered the credit rating of the United States to AA- from AA. There was also a flurry of economic reports. Retail sales for August rose 0.9% for the month, matching estimates. Industrial production in August fell more than expected and capacity utilization dropped, also more than projected. The Consumer Price Index for August increased by 0.6%, matching forecasts, but it was the largest increase in inflation since June 2009. Consumer sentiment rose to the highest reading since May, topping forecasts, but business inventories rose in July twice as much as economists had expected.
At Friday’s close, the Dow was up 54 points to 13,593, the S&P 500 rose 6 points to 1,466, and the Nasdaq gained 28 points to 3,184. Volume on the NYSE increased to 898 million shares, while the Nasdaq traded 477 million. Advancers led decliners on both exchanges by about 2-to-1. For the week, the Dow gained 2.2%, the S&P 500 was up 1.9%, and the Nasdaq was up 1.5%.
The breakout of the S&P 500 is confirmed by moving out of the small island with a top at 1,438. The index stayed at that level for four days before the big move on Thursday, followed by another increase on Friday. MACD confirmed both moves with a strong buy signal, and 14-to-1 positive breadth occurred on Thursday, Sept. 6, and over 10-to-1 on Thursday, Sept. 13.
Although Friday’s break from the Dow transports’ triangle won’t satisfy the Dow Theory purists that a non-confirmation is still in place, it is enough to indicate that the trend has changed. Higher overall volume and a MACD buy signal are enough to convince me that higher prices are ahead.
With an Arab Spring turning hot, the devaluing of the currency by virtue of QE3-plus, and a lowering of theU.S.debt rating to a third-world rate, there was reason for the sag in the buck. This, of course, usually leads to a move up for the stock market, gold and precious metals, and commodities in general.
Conclusion: With a quadruple witching day this coming Friday (the expiration of stock options, index futures, index options and single stock futures all on the same day), virtually anything can happen this week. Therefore, look for very high volatility.
Dorsey Wright suggests using quadruple witching’s volatility to your advantage — if you are interested in buying a stock, put in the buy order several points under the market and the opposite for sells.
As the market progresses, I’ll give support and resistance numbers. But for now, assume that the old breakout levels (like S&P 1,418) are the first strong support lines for each of the major indices.
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.
