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Don’t Sell This Dull Market

The chances of a near-term breakout are improving


Alcoa (NYSE:AA) kicked off the Q4 earnings season by meeting earnings estimates and exceeding revenue estimates. The stock fell $0.02, but Boeing (NYSE:BA) picked up the lagging Dow industrials by jumping 3.6% after several down days due to problems with its newly delivered 787 Dreamliner.

The only economic news was from the MBA Mortgage Index, which reported an 11.7% jump in mortgage applications. Today, the weekly initial and continuing jobless claims will be reported at 8:30 a.m. The expectation is for 365,000 claims, down from 372,000.

At Wednesday’s close, the Dow Jones Industrial Average was up 62 points at 13,391, the S&P 500 rose 4 points to 1,461, and the Nasdaq gained 14 points at 3,106. The NYSE traded 671 million and the Nasdaq crossed 363 million. On the Big Board, advancers led decliners by 2.2-to-1, and on the Nasdaq, advancers were ahead by 1.9-to-1.

SPX Chart
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Trade of the Day Chart Key

This chart focuses on the last four months of trading in which an inverse head-and-shoulders appears to be forming. If the neckline at 1,466 is broken on a close, and with greater-than-average volume, a new high for the trend will have been established, and as noted in Wednesday’s Daily Market Outlook, the target would be at about 1,589.

The sideways consolidation following the big jump on Jan. 2, resulting from the avoidance of the fiscal cliff, is not unusual. The next resistance is at the September high of 1,474.5.

Nasdaq Chart
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The fiscal cliff gap on the Nasdaq, like the S&P, has been followed by a flat consolidation. Although selling has been light, MACD is overbought and the right triangle is a bit unusual. Nevertheless, we must always give the benefit of doubt to the price action and the trend, which is up.

A pullback to the 20-day moving average at just under 3,050 would partially fill the gap and do no damage to the overall trend. The next support is at the 50-day and 200-day moving averages at under 3,000.

Conclusion: With the exception of new highs for the NYSE Composite and Russell 2000, the other benchmark indices are consolidating in a limited and boring range. With the cliff now out of the way, straightforward technical analysis tells us to be patient. The bulls are in charge, and the chance of a near-term breakout of the S&P 500 is improving. As the Wall Street adage goes, “Never sell a dull market.”

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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