Market Gives Green Light to Load Up on Stocks

Leading indices are in solid formations; internal indicators all positive

By Sam Collins, InvestorPlace Chief Technical Analyst

Despite earnings misses by two technology giants, stocks managed to close modestly higher Wednesday. IBM (NYSE:IBM) fell 4.9% after reporting a revenue shortfall, and Intel (NASDAQ:INTC) lost 2.5% despite beating its earnings and revenue estimates, because analysts lowered their annual target. Together the two stocks deprived the Dow Jones Industrial Average of about 100 points.

But stocks rallied on continued signs that the U.S. housing market may be turning up. Construction of new homes rose in September to the highest level in more than four years, and new building permits rose above estimates.

At Wednesday’s close, the Dow was up 5 points to 13,557, the S&P 500 rose 6 points to 1,461, and the Nasdaq gained 3 points at 3,104. The NYSE traded 688 million shares and the Nasdaq crossed 418 million. On the Big Board, advancers exceeded decliners by 2.1-to-1, and on the Nasdaq, they were ahead by 1.6-to-1.

NYSE Chart
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Trade of the Day Chart Key

One of the most reliable charts for confirming trends is the NYSE Composite. Since it contains every stock traded on the New York Stock Exchange, it represents a broad cross-section of the economy.

On Wednesday, despite big hits to the technology sector, the NYSE Composite plugged along with a 0.72% gain. This beat the other indices by about double and confirms that the bull market is not only healthy, but that this index is headed for a new annual high.

Note the break from the minor resistance line at about 8,400 and the gap on Tuesday through the 20-day moving average (green line). Support is at the major breakout line at 8,200 and the 50-day moving average just over it.

With just 13 points from 8,459 and a boost from the MACD indicator, which issued a buy signal Wednesday, the bulls should have slept well last night. The next target for the index is the April 2011 high of 8,671.

Conclusion: With the leading higher-quality indices in solid formations, our internal indicators (stochastic, MACD, momentum, RSI) all positive, and the sentiment indicator from AAII, which measures public sentiment confused (bears and bulls equal), we have a green light to load up on quality stocks.

Long-term buyers might consider some of the hammered blue-chip tech stocks as good values. Microsoft (NASDAQ:MSFT) and IBM, for example, can be socked away at what appears to be bargain prices.

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.

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