Buy Only on Intraday Pullbacks

by Sam Collins | October 3, 2012 2:55 am

Stocks again started strong Tuesday, but prices faded when Spain’s prime minister said that an aid request from his country was not imminent. But the decline flattened off around noon, and was followed by a late-day rally that resulted in a mixed close.

At Tuesday’s close, the Dow Jones Industrial Average was off 33 points at 13,482, the S&P 500 inched forward by a point at 1,446, and the Nasdaq gained 7 points at 3,120. The NYSE traded 595 million shares and the Nasdaq crossed 371 million. Advancers were slightly ahead of decliners on both exchanges.

DJI Chart
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Trade of the Day Chart Key

Tuesday’s late rally didn’t save the Dow from a downtick, but it did preserve the bullish flag on the index that also appears on the S&P 500 (see the Sept. 28 Daily Market Outlook[1]). Flags are bullish chart features, and prices almost always break to the upside from this formation.

Note that the MACD is oversold and that the intermediate uptrend line is tracking the 50-day moving average now at 13,228 — both are rising. The line at 13,275 is the first major support line, followed by the uptrend line and the moving average.

DJT Chart
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The divergence between the Dow industrials and the Dow transports is still an annoyance to Dow Theory followers. But the Dow Jones Transportation Average is now so oversold (MACD) that Tuesday’s uptick has to be greeted as very good news. It may be some time before the transports challenge the high at over 5,400, but at least the chances have diminished of a complete breakdown.

Conclusion: You’ve likely heard the saying, “never sell a dull market.” With volume contracting for four consecutive days and the market in a very narrow but bullish pattern, both investors and traders should play the long side of the market, but only on intraday pullbacks. Market orders are discouraged under light-volume conditions since spreads between bid and ask prices tend to expand — thus, enter limit orders only.

One chart that I think demands our readers’ attention is that of Apple (NASDAQ:AAPL). The stock has declined from the stratospheric high of the iPhone 5 announcement and could be a buy — or not. See my Trade of the Day[2] and give me your opinion as to the future course of this juggernaut.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

  1. Sept. 28 Daily Market Outlook:
  2. See my Trade of the Day:
  3. click here:
  4. click here:

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