There’s Only One Way to Play This Market

by Sam Collins | September 9, 2013 7:28 am

On Friday, stocks opened sharply lower following a disappointing labor report. But within an hour the market recaptured all of its losses when it became clear that as a result of the report the Fed would be hard-pressed to scale back their bond purchasing program.

The disappointing report, which showed that non-farm payrolls increased by just 169,000 instead of an expected increase of 177,000, had an immediate impact on crude oil, Treasury bonds, and gold, all of which popped to their highs of the day. And the 10-year Treasury note’s yield fell to 2.86% but recovered to 2.94% at the close.

The unemployment rate fell to 7.3%. But as a share of the population, fewer Americans are working or looking for work than at any point in the past 35 years. The total labor force participation rate now stands at just 63.2%.

At Friday’s close, the Dow Jones Industrial Average was off 15 points at 14,923, the S&P 500 was unchanged at 1,655, and the Nasdaq fell 1 point to 3,660. The NYSE traded 672 million shares and the Nasdaq crossed 407 million. On the Big Board, advancers led decliners by 1.6-to-1, but on the Nasdaq, decliners were ahead by 1.1-to-1.

Dow Chart
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[1]Chart Key[2]

The Dow industrials continue to struggle at the narrow support band of 14,765-14,887. And this band isn’t its only problem. On Friday, it backed away from the 20-day moving average at 15,027 and has massive resistance from 14,887 to 15,418. Within that band is the important 50-day moving average at 15,249.

Despite Friday afternoon’s sag, MACD issued a buy signal. Thus, the blue-chip bulls are not dead, but they are in need of a transfusion.

 SPX Chart
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The broad-based S&P 500 is in slightly better shape than the Dow. However, the index is having a difficult time holding above its 50-day moving average and even closed below the lightweight 20-day moving average at 1,657. Its intermediate bullish trend is in question but still up, and on Friday, the index got a boost from MACD’s buy signal.

Nasdaq Chart
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The Nasdaq’s successful test of its 50-day moving average at 3,596, and the subsequent forming of a bullish “V,” is a strong positive development for the mid-cap stocks. MACD issued a strong buy signal, which also supports the bulls’ case.

RUT Chart
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Although the intermediate trend is up, the Russell 2000 is having a rough time getting out of the channel correction from 1,010 to 1,035. And it has failed to close above its 20-day moving average at 1,030 and the 50-day at 1,032. Additionally, unlike Nasdaq, it has failed to issue a MACD buy signal. But a strong day of buying would trigger that indicator.

Conclusion: The current economic and political pressures are enormous. The G-20 meeting turned into a dud, expectations of the beginning of a Fed cut in its bond-buying program are fading, the anniversary of 9/11 has everyone nervous, the government is again facing a possible shutdown, and if the president decides to bomb Syria, a war in the Middle East could break out.

What is most amazing is that, despite all of the negatives, the U.S. stock market has held firm. The technical picture, though not clear as to direction, is not telling us to sell off everything. The message it is giving is clear, and that message is “wait.” Wait and the events of September will tell us what to do. 

The traders, as illustrated by the Russell 2000, are scared, while the blue-chip buyers, shown by Dow industrials, are cautiously bearish. But most investors, i.e., the Nasdaq and the S&P 500, are prepared to buy on a correction or the resolution of some of our current problems . “Patience, grasshopper, patience,” was quoted by several well-known technicians. 

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

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