Watch for a New Buy Signal in This Sector Today

by Sam Collins | February 12, 2014 2:51 am

Stock rallied again on Tuesday as investors embraced the comments of the new Federal Reserve chair, Janet Yellen, who indicated that there would be no significant change to monetary policy.

In testimony before the House Committee on Financial Services, she said that any decisions would be “data dependent.” But it was clear that she didn’t plan to break new ground and would continue with a policy of “easy money.”

Along with an advance in stocks, gold hit its highest price of the year, settling at $1,290 an ounce. The U.S. dollar was slightly higher against the yen, and the yield on the 10-year Treasury note rose to 2.72% from 2.68% on Monday.

The only significant economic report was December wholesale inventories, which increased 0.3%. Analysts had expected an increase of 0.5%.

At the close, the Dow Jones Industrial Average rose 193 points to 15,995, the S&P 500 gained 20 points at 1,820, and the Nasdaq was up 43 points at 4,191. Volume was light with the NYSE’s primary market trading less than 700 million shares. Total NYSE volume was 3.6 billion shares, and the Nasdaq traded under 2 billion shares. On the Big Board, advancers outpaced decliners by 3.5-to-1, and on the Nasdaq, advancers were ahead by 2.3-to-1.

SPX Chart
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Chart Key[1]

The S&P 500 has sliced through some significant technical resistance in just four days. And it has overcome three major inflection points — the resistance line at 1,775, the 50-day moving average at 1,809, and the resistance line at 1,813.

IBB Chart
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Biotech has been one of the leading sectors for the Nasdaq and S&P 500. On the chart of the iShares Nasdaq Biotechnology (IBB[2]) we see an acceleration of momentum when, on Jan. 8, the ETF crushed the resistance line of its long-standing bull channel and shot to new highs. The current pattern is of a “W” formation with an objective of $270. A new MACD buy signal will no doubt be triggered today.

Conclusion: The response to Yellen’s testimony positioned the stock market for a run at the highs. But the S&P 500 must maintain its position above the support line and inflection point at 1,813.

A continuation of buying above 1,813 could be met with some significant resistance, since the index traded in a range from 1,813 to 1,850 from Dec. 20 to Jan. 24. But momentum and a new buy signal from MACD should encourage the bulls to move to higher pastures.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[3].

For a list of this week’s economic reports due out, click here[4].

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  2. IBB:
  3. click here:
  4. click here:

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