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Be prepared to buy on a minor pullback that should be quickly reversed


The Nasdaq broke a four-day losing streak, advancing 0.37%, along with the small-cap Russell 2000 index, which was up 0.36%. The S&P 500 also had a modest gain, up 0.03%, but the Dow fell 0.07%. Weakness was attributed to concerns over China’s economy and tensions between Russia and the West over the future of Ukraine.

General Motors (GM) fell 0.91% on news that government regulators would investigate complaints about faulty ignition switches.

The only economic report of interest was the weekly MBA Mortgage Index, which fell 2.1%. This followed last week’s increase of 9.4%.

At Wednesday’s close, the Dow Jones Industrial Average fell 11 points to 16,340, the S&P 500 was up less than 1 point to 1,868, and the Nasdaq was up 16 points at 4,323. The NYSE’s primary market traded 658 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 2.1 billion shares. Advancers outpaced decliners on both major exchanges by about 1.2-to-1.

DJI Chart
Click to Enlarge

Chart Key

The Dow industrials are slowing following Friday’s attempt to break out. Immediate support is at the 20-day moving average at 16,234 and the 50-day at 16,167. And the support zone at 15,720 to 16,175 should hold back any serious attempt by the bears to turn the trend down.

DJT Chart
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The Dow transports look much like the industrials. However, that bull channel with support at the conjunction of the 20-day and 50-day moving averages at under 7,400 is an important barrier to the bears.

Conclusion: The bulls would feel more secure if only the Dow industrials and the transports would break out together and render a new Dow Theory buy signal. Eventually we should see a breakout, but trading has been slow, and selling pressure has been light.

Even though volume has been especially light on the downside, and our internal indicators are all positive, a modest pullback to the major moving averages is possible. If we get it, buyers will probably jump on their favorites, so be prepared to buy yours at your predetermined prices. For a year, pullbacks have been quickly reversed, and so Good-Til-Cancelled (GTC) limit orders should be placed on stocks you want to buy.

Today’s Trading Landscape

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

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

Article printed from InvestorPlace Media,

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