Bulls’ Position Has Substantially Strengthened

by Sam Collins | February 14, 2014 2:15 am

Following a nasty gap down at the opening on Thursday, stocks rallied and not only closed the gap but forged ahead with an impressive gain. The initial selling was from the impact of worse-than-expected economic reports an hour before the open.

Small caps, which have been lagging recently, led the way higher. The Russell 2000 rose 1.4%, and the more quality oriented S&P 500 gained 0.6% after being down 0.6% on the opening.

January retail sales fell more than anticipated, and weekly jobless claims of 339,000 were higher than the expected 331,000. These reports followed last week’s disappointing numbers from the labor market and manufacturing sector.

However, with regard to January retail sales, several analysts expressed an opinion that the bad weather in the eastern United States contributed to the light sales numbers and that a recovery is expected when the weather clears.

Time Warner Cable (TWC[1]) jumped over 7% after agreeing to be acquired by Comcast (CMCSA[2]). Cisco Systems (CSCO[3]) fell 2.5% after narrowly beating revenue and earnings forecasts but issuing lower-than-expected guidance.

At Thursday’s close, the Dow Jones Industrial Average rose 64 points to 16,028, the S&P 500 gained 11 points at 1,830, and the Nasdaq jumped 39 points to 4,241. The NYSE primary market traded under 700 million shares with total volume of 3.3 billion shares. The Nasdaq crossed 2.3 billion shares. Advancers outpaced decliners on both major exchanges by about 2.7-to-1.

SPX Chart
Click to Enlarge

Chart Key[4]

The S&P 500 advanced into the tight band of resistance above 1,813 with ease Thursday despite the low volume but acceptable breadth. The close above the former resistance line is impressive, but even more impressive is the advance following Tuesday’s and Wednesday’s close above the 50-day moving average and the strong buy signal from the MACD indicator.

RUT Chart
Click to Enlarge

Both the “generals” (blue chips) and “privates” (small caps) led the advance. The Russell 2000, a measure of small-cap stocks, continued to climb a ladder of six straight advances from its low on Feb. 5. Thursday’s advance resulted in a buy signal from MACD, which supports the strong price action.

Conclusion: Following Thursday’s powerful price action, the bulls have been substantially strengthened. All of our internal indicators are now on the bull’s side. We may wish for more supporting volume, but it is hard to argue against the tape action, which is powerfully bullish.

Keep in mind the saying, “In a bull market, all surprises are on the upside.”

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[5].

For a list of this week’s economic reports due out, click here[6].

  1. TWC: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWC
  2. CMCSA: http://studio-5.financialcontent.com/investplace/quote?Symbol=CMCSA
  3. CSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSCO
  4. [Image]: https://investorplace.com/wp-content/uploads/2013/05/chart-key.gif
  5. click here: http://www.bloomberg.com/apps/ecal?c=US
  6. click here: http://www.bloomberg.com/markets/economic-calendar/

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