It Appears Safe to Return to the Long Side of the Market

by Sam Collins | January 16, 2014 2:05 am

The S&P 500 jumped to a new all-time closing high Wednesday, squeaking past the Dec. 31 close of 1,848.36 by advancing to 1,848.38. And the Nasdaq rose 0.8% to its highest level in more than 13 years.

The major indices were in positive territory during the entire session following an increased global growth forecast for 2014. The World Bank now estimates 3.2% growth versus a previous 3%. Strong holiday sales figures also appeared to play a role in the rally.

Financials and technology stocks led the advance, with both sectors gaining 1.2%. Apple (AAPL[1]) jumped 2% following positive comments by its CEO on the benefits of the recent agreement with China Mobile (CHL[2]) that helped achieve record iPhone sales in China during the first quarter. Bank of America (BAC[3]), JPMorgan Chase (JPM[4]) and Wells Fargo (WFC[5]) all rose following earnings that exceeded analysts’ forecasts.

And there were three positive economic reports: December PPI increased, the Empire State manufacturing index soared, smashing estimates, and the weekly MBA Mortgage Application Survey for January also increased.

At Wednesday’s close, the Dow Jones Industrial Average jumped 108 points to 16,482, the S&P 500 gained 10 points at 1,848, and the Nasdaq jumped 32 points to 4,215. The NYSE traded a total of 3.7 billion shares with 716 million on the primary market, and the Nasdaq traded a total of 2 billion shares. Advancers outpaced decliners on both exchanges by about 1.9-to-1.

Nasdaq Chart
Click to Enlarge

Chart Key[6]

The Nasdaq’s rally to a new 13-year high was supported by a pending buy signal from the MACD indicator and a gap that almost always results in a follow-up advance.

The trend channel on this chart is of the intermediate trend, while the major bull market line is just above its 200-day moving average at 3,684. In other words, this index has lots of support going for it: First the 20-day moving average at 4,138, then the support line at 4,100, and the 50-day moving average at 4,047.

SPX Chart
Click to Enlarge

The S&P 500 set a new high by a fraction, but a high it was despite a MACD that is in its bear zone. Like the Nasdaq, sellers will find it difficult to break the uptrend since the S&P 500 has numerous levels of support.

Conclusion: With both the Nasdaq and S&P 500 setting new highs and the Dow industrials turning north again, Wednesday morning’s short-term advice to traders to sell into gains now looks like I jumped the gun.

Even the industrials appear to be curling out of a short-term decline (see Wednesday’s chart[7]), and the Dow transports set another new high. But the industrials are not out of harm’s way until the index has made a new high, and the action of that index is perplexing. I was not surprised by the early selling in January, but Monday’s selling appeared to be a wake-up call.

I’ve said many times that price trumps everything, so traders and investors alike should remain bullish. That doesn’t mean that we chase stocks with abandon, but it does mean that the near-term trend is again bullish and we should return to trading the long side of the market.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[8].

For a list of this week’s economic reports due out, click here[9].

  1. AAPL:
  2. CHL:
  3. BAC:
  4. JPM:
  5. WFC:
  6. [Image]:
  7. see Wednesday’s chart:
  8. click here:
  9. click here:

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