‘Smart Money’ Still Chasing Blue Chips, but Should You?

by Sam Collins | April 5, 2013 2:58 am

Stocks started Thursday on a mixed note and ended on a mixed note. In between it was headline news that created the volatility. Japan instituted new stimulus from its central bank causing stocks to rally, but the advance was short lived. Stocks faded following the initial jobless claims number when it jumped to 385,000 instead of falling to 345,000 as expected.

Today, following the disappointment of Thursday, the focus will be on March payrolls reports, including nonfarm, nonfarm private, and the unemployment rate. And the busy day will include the February consumer credit report and the February trade balance.

At Thursday’s close, the Dow Jones Industrial Average gained 56 points at 14,606, the S&P 500 rose 6 points to 1,560, and the Nasdaq was up 6 points at 3,225. The NYSE traded 647 million shares and the Nasdaq crossed 371 million. On the Big Board, advancers led decliners by 1.6-to-1, and on the Nasdaq, advancers were ahead by 1.8-to-1.

DJT Chart
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Trade of the Day Chart Key[1]

The Dow Jones Transportation Average rose just 4 points Thursday, failing to close above its 50-day moving average while its MACD fell further into bearish territory.

DJI Chart
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However, the industrials have held their own despite 10 mixed closings (one day up, the next down). The index has even held above its 20-day moving average (green line), which suggests that “smart money” is still chasing the blue chips.

Conclusion: Despite the Dow industrials’ ability to hold the course, the breakdown of the transports creates a classic Dow divergence and must be considered a negative. The other disturbing characteristic of the industrials’ pattern is its failure to put together two advancing days in the past 11 sessions. The mixed closings demonstrate its inability to forge ahead.

The AAII numbers for this week show indecision on the part of public investors: 35.5% bulls (-2.9%), 28.2% bears (-0.5%), and 36.3% neutral (+3.4%). The neutral reading was 6.3% above average.

Among securities analysts there is an expectation that Q1 earnings for the S&P 500 will be -3.6% and that the Russell 1000 growth-and-value stocks will report 7.5% lower earnings than first anticipated.

With uncertainty now certain, my earlier sense is confirmed — that it is best to be in cash for all trading positions or play the short side of the market. By taking to the sidelines, traders and investors alike will preserve their gains and have buying power after the current indecision runs its course.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[2].

For a list of this week’s economic reports due out, click here[3].

  1. [Image]: https://investorplace.com/wp-content/uploads/2011/04/chart-key.gif
  2. click here: http://online.wsj.com/mdc/public/page/markets_calendar.html?mod=topnav_2_3024
  3. click here: http://www.briefing.com/investor/calendars/economic/

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