Use Pullbacks to Get Positioned for the New Year

by Sam Collins | December 3, 2013 2:20 am

Stocks fell on a broad front Monday as new worries over Federal Reserve policy under a new chair dominated the session. And what appeared initially to be stronger retail sales last week are considered misleading as new data indicates that even though there were more shoppers, they spent less per person than last year.

Retail data also indicates that the traditional brick-and-mortar stores suffered and that shoppers spent less during the Thanksgiving weekend than in any such period since 2006, according to the National Retail Federation.

On a brighter note, the Institute for Supply Management said U.S. manufacturing activity rose to 57.3 in November from 56.4 in October, the highest reading since April 2011.

At Monday’s close, the Dow Jones Industrial Average fell 78 points to 16,009, the S&P 500 lost 5 points at 1,801, and the Nasdaq dropped 15 points to 4,045. The primary NYSE market traded 667 million shares with total volume of 3 billion shares, while the Nasdaq crossed 1.6 billion shares. Decliners outpaced advancers on both major exchanges by about 2.5-to-1.

SPX Chart
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Chart Key[1]

The S&P 500’s mild pullback to just above 1,800 stopped short of violating the near-term trendline, just under the low of the day at 1,798. MACD, however, flashed a short-term sell signal, which indicates that the index will probably test the 20-day moving average at 1,785, as well as the important October high at 1,775.

Bands of support rest under these numbers. The most important are the 50-day moving average at 1,744 and the intermediate trendline around 1,700.

Conclusion: The market’s technical outlook is little changed following Monday’s modest pullback. With each of the major indices marking new highs, it is not unusual to start a new week on a slightly corrective note. And we should expect further adjustments as institutional investors shift sectors and quality of holdings before December closes.

So far, only the near-term trend is in danger of a temporary flip to the downside. And if that occurs, use the decline to accumulate highly volatile but fundamentally strong stocks since they should have the best potential for high returns early in the new year.

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].

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