Don’t Sweat a Little Consolidation

by Sam Collins | November 21, 2013 2:46 am

On Wednesday, stocks fell almost immediately following the release of the minutes of the Federal Reserve’s October meeting. Although the minutes were similar to those of the September meeting, the anticipation of a winding down of bond purchases in coming months has the market on edge.

Fed Chairman Ben Bernanke said that short-term interest rates may stay low even after the unemployment rate target of 6.5% is reached. Federal Reserve chair nominee Janet Yellen is known to be an easy-money economist, and so the reaction of markets was felt by many to be a bit overdone.

In economic news, retail sales rose 0.4% versus an expected rise of 0.1%. Existing home sales fell 3.2% month over month in October, while expectations were for a decline of 2.6%.

Yahoo (YHOO[1]) rose 2.86% on news of a share buyback plan. And Deere & Co. (DE[2]) jumped 2.06% on better-than-expected quarterly earnings.

At Wednesday’s close, the Dow Jones Industrial Average was off 66 points at 15,901, the S&P 500 fell 7 points to 1,781, and the Nasdaq was down 10 points at 3,921. The NYSE traded 622 million shares (primary market) with total volume of 3 billion shares, and the Nasdaq’s total volume was 1.7 billion shares. On the Big Board, decliners outpaced advancers by almost 2-to-1, and on the Nasdaq, decliners were ahead by 1.2-to-1.

SPX Chart
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Chart Key[3]

The first line of support for the S&P 500 is at its breakout point of 1,775. But the index found support at the 20-day moving average three times in November, indicating that it too is a major support line, and if violated, could result in a pullback to the 50-day moving average at 1,730.

Nasdaq Chart
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The Nasdaq has pulled back from its recent intraday high at 3,995. However, unlike the S&P 500, it has floated around its 20-day moving average and found support at its 50-day moving average, now at 3,849. Its uptrend is intact, but with MACD in the bear zone, the support line at 3,900 is now under pressure.

Conclusion: Stocks are consolidating following recent new highs. Support is close at hand, and with a huge amount of money still on the sidelines and a fairly high short interest, the near-term trend is still bullish.

However, some overextended sectors, like 3D printing, are being hammered. These stocks are great candidates to put on your buy list, but only at lower prices. Smart traders and investors will use corrective dips in highly volatile stocks as a chance to bargain hunt.

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. YHOO:
  2. DE:
  3. [Image]:
  4. click here:
  5. click here:

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