Caution: Major Indices Have Stalled

by Sam Collins | December 11, 2012 2:49 am

Blue chips rose slightly on anticipation of a rumored deal between President Obama and House Speaker John Boehner. But investors’ caution was evident in the narrow trading range — just 56 Dow points from low to high, the lowest spread in almost four months.

Better earnings by fast food giant McDonald’s (NYSE:MCD[1]), up 1.05%, accounted for much of the Dow’s advance. The Nasdaq had a small gain despite a fall of 0.64% for Apple (NASDAQ:AAPL[2]), which drew sellers again after a cut in its price objective by Jefferies to $800 from $900.

At Monday’s close, the Dow Jones Industrial Average was up 15 points to 13,170, the S&P 500 was breakeven at 1,419, and the Nasdaq gained 9 points at 2,987. The NYSE traded 592 million shares, its lowest volume in weeks, and the Nasdaq crossed 342 million. On the Big Board, advancers exceeded decliners by 1.2-to-1, and on the Nasdaq, advancers were ahead by 1.3-to-1.

SPX Chart
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Trade of the Day Chart Key

The S&P 500 closed smack on its resistance line at 1,419 and above its 50-day moving average at 1,417. The next point of resistance is the December high at 1,423.

On balance the price action of the S&P 500 is positive as it continues to slowly grind out distance between its daily closes and the supporting 200-day moving average at 1,386. But MACD is overbought and momentum is beginning to lag, which means that the current rally is running out of steam.

Nasdaq Chart
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While the S&P 500 is slowing, the Nasdaq has a more serious problem — it has already stalled. It inched forward Monday, but is being pressed by a declining 50-day moving average, now at 3,004. Another major issue is its MACD indicator, which has curled down and is falling rapidly. The Nasdaq is in serious need of a catalyst to rally.

Conclusion: Both Washington and the major indices are stalled. Usually more time is beneficial to stock price movements, but not in the current situation. Each day the market is showing more signs of fatigue with downside momentum increasing.

The recent AAII Sentiment Survey confirmed the fragile state of the market in their recent report, in which more bullish sentiment is a bad omen. They report that, “bullish sentiment rose to its highest level since March 29, 2012.” They went on to say, “This is both the highest level of optimism registered by the survey and the first time bullish sentiment has been above its historical average of 39% on consecutive weeks since last March.”

Let’s hope that the average investor is correct and that the politicians put a deal together before Christmas. For now, with some exceptions (see the Trade of the Day[3]), we are staying on the sidelines.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[4].

For a list of this week’s economic reports due out, click here[5].

  1. MCD:
  2. AAPL:
  3. Trade of the Day:
  4. click here:
  5. click here:

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