After a string of Monday sell-offs, this week the Dow industrials led the market to its biggest gain in a month. The rush to buy was triggered by better-than-expected earnings from Citigroup (NYSE:C) and a stronger September retail sales report.
Blue chips led the way higher with the Dow Jones Industrial Average up 95 points to 13,424, the S&P 500 gaining 12 points to close at 1,440, and the Nasdaq rising 20 points to 3,064. The NYSE traded 618 million shares and the Nasdaq crossed 369 million. Advancers were ahead of decliners on both exchanges by about 2-to-1.
Blue chips were in vogue Monday as institutions bought them at a critical point — the industrials’ 50-day moving average. Four days of testing appears to have been resolved in favor of the bulls as the index turned up from the moving average at 13,325. Another favorable sign is the oversold condition of the MACD, which should now shift up if the rally to new highs at 13,665 is to succeed.
The bulls will be celebrating the Dow transports’ close above its 50-day moving average and the continuation of a short-term rally that began with a MACD buy in mid-September at the support line at about 4,900. Fear of a Dow Theory non-confirmation has been set aside in favor of a more positive outlook as a result of a successful test of the resistance line just above the 200-day moving average at about 5,150.
It’s been a long time since we reviewed all three of the major Dow indices. The Dow Jones Utility Average is generally accumulated when yields are high on the group and the economy is expected to improve within nine months or so. Thus, it is a strong positive when the index shows signs of strength.
On Monday, the index closed above its 50-day moving average and flashed a buy signal from our proprietary indicator, the Collins-Bollinger Reversal (CBR). This took place within a bullish flag — another positive.
Conclusion: The Dow Jones indices put on a show of strength Monday as institutional investors set aside the risks of speculative stocks and opted for the steady growth associated with blue chips.
Breadth was a solid 2-to-1 in favor of the bulls and group rotation has been steady — both signs that the current support zones of the higher quality indices will hold. This raises the probability that the old highs will come under attack before the end of the year.
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.