Surprising Sector Scores a Major Breakout

by Sam Collins | February 19, 2014 2:10 am

Large-cap stocks may have paused Tuesday, but small- and mid-cap stocks plugged along. The Russell 2000 rose 1.1%, and the Nasdaq gained 0.68%. The S&P 500 only rose 0.12%, primarily due to a surge in health care and energy stocks, but the Dow Jones Industrial Average fell 0.15%.

Manufacturing activity in the New York region slowed, with the New York Federal Reserve’s Empire State index falling to 4.5 in February from 12.5 in January. This was below expectations of 8. Most of the decline was ascribed to the impact of bad weather in the region.

The National Association of Home Builders’ housing market index fell sharply to 46 in February, when it was expected to remain flat at 56, and this too was blamed on the weather.

At Tuesday’s close, the Dow Jones Industrial Average fell 24 points to 16,130, the S&P 500 rose 2 points to 1,841, and the Nasdaq was up 29 points at 4,273. The NYSE’s primary market traded 720 million shares with total volume of 3.4 billion shares. And the Nasdaq traded total volume of 1.9 billion shares. Advancers outpaced decliners on the Big Board by 2.1-to-1, while advancers were ahead by 1.5-to-1 on the Nasdaq.

SPX Chart
Click to Enlarge
 Chart Key[1]

While the Dow languishes, the S&P 500 has formed a very bullish “V.” Solid support now rests at 1,813-1,812 and the band beneath that line. Thus, fear of a quick sell-off is diminished, and momentum has clearly swung to the upside. Note the strong buy signal from MACD.

UNG Chart
Click to Enlarge

There are several sectors pulling the S&P 500 higher. Last week, I covered one of the most powerful groups[2], biotech stocks.

On Tuesday, we saw a rather surprising breakout in the natural gas sector, as illustrated by the United States Natural Gas Fund (UNG[3]). Note the double-bottom and “W” breakout with a huge increase in volume.

This breakout appears to have some push behind it, which is turning the MACD’s fast line (red) up and close to a new buy signal. (See my Trade of the Day[4] for a way to capitalize on this breakout.)

Conclusion: Despite the naysayers, stocks continue to make new highs. Some complain that there isn’t enough volume, or that breadth is lagging, or only the traders are in the market, etc. The response is obvious. There is only one thing that counts: price. And prices are reaching for a new high.

Investors should keep in mind the sayings, “never sell a dull market” and “don’t fight the Fed.” Those who do those things are still in the train station wondering if they should buy a ticket, and they’ve been there for two years. When they finally decide to “jump aboard,” it is sad to say that it will be time to get off at the next station.

As stated on Jan. 9[5], my target for the S&P 500 is 2,214, which is an advance of about 20% from current levels.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[6].

For a list of this week’s economic reports due out, click here[7].

  1. [Image]:
  2. I covered one of the most powerful groups:
  3. UNG:
  4. Trade of the Day:
  5. As stated on Jan. 9:
  6. click here:
  7. click here:

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