Market Survives Downside Reversal — What’s Next?

by Sam Collins | April 24, 2013 2:41 am

Stocks opened strong and held their gains Tuesday despite an early afternoon scare from a bogus AP tweet. The fake message said that two explosions had occurred at the White House and that President Obama was injured. The erroneous report sent stocks reeling with the Dow falling 140 points in two minutes. But the market quickly made up the lost ground and, led by the technology sector, scored solid gains. 

Netflix (NASDAQ:NFLX[1]) opened over 40 points higher following better-than-expected Q1 earnings. The broad-based PHLX Semiconductor Index (SOX) rose 2.1% for the day. And Apple (NASDAQ:AAPL[2]) gained 1.9% in anticipation of its fiscal Q2 earnings report that was due after the close. The big tech company reported 18% lower earnings, but still beat analysts’ estimates for both earnings and revenues.

At Tuesday’s close, the Dow Jones Industrial Average gained 152 points at 14,719, the S&P 500 rose 16 points to 1,579, and the Nasdaq gained 36 points at 3,269. The NYSE traded 684 million shares and the Nasdaq crossed 441 million. Advancers led decliners on both major exchanges by about 3.3-to-1.

Nasdaq Chart
Click to Enlarge

Trade of the Day Chart Key[3]

A strong day for technology stocks gave a much needed boost to the Nasdaq, pushing its intraday high to 3,276 and a close above its 50-day moving average at 3,220, which, along with the line at 3,197, provide the most immediate support. The index did fail to close over its resistance at 3,270, and thus, the recent lower lows of April remain a hindrance to a technical reversal.

Note, however, that MACD is hooking up from an oversold area, and with another day like Tuesday, could render a strong buy signal. Another positive is that the index has reversed from under its 50-day moving average.

SPX Chart
Click to Enlarge

The long-term chart of the S&P 500 illustrates the importance of making a clean break above the 2007 high of 1,576. Currently, the intraday high of 1,597 only partially meets the requirements of a long-term technical breakout since the high close of this month is 1,593, and that was followed by a reversal and penetration of the 50-day moving average last week. I would like to see at least a 2% push higher than the 2007 high before going 100% bullish, and that means a break above 1,607.

Conclusion: The market has at least temporarily survived a downside reversal. This week, the charge forward has been led by technology stocks, and that’s a positive since one of the foundations of U.S. production is the technology sector. But the lower lows by the Nasdaq, along with an unresolved Dow divergence noted yesterday[4], keep me on the sidelines but straining to be long. 

For now, I remain neutral with some short-term trades in the tech sector (see the Trade of the Day[5]). However, a push to new highs by the Dow transports would necessitate a move to the bullish camp.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[6].

For a list of this week’s economic reports due out, click here[7].

  1. NFLX:
  2. AAPL:
  3. [Image]:
  4. noted yesterday:
  5. Trade of the Day:
  6. click here:
  7. click here:

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