We Finally Got Our Breakout, But…

by Sam Collins | March 3, 2014 3:10 am

On Friday, stocks closed mixed with the better-quality stocks leading an advance, but mid- and small-caps succumbing to profit taking. The S&P 500 and the Dow Jones Industrial Average rose 0.3%, but the Nasdaq fell 0.25% and the Russell 2000 lost 0.4%.

Nevertheless the S&P 500 hit another new high and had its best monthly performance since October, up 4.3%. But on Friday afternoon, many of the earlier gains were lost when it was reported that Russian troops had entered the Crimea, a province of Ukraine.

Fourth-quarter GDP was revised down from 3.2% to 2.4%, which generally matched economists’ estimates. The Chicago PMI for February increased to 59.8 vs. a consensus expectation of a decline to 56. Pending home sales for January rose 0.1%, which failed to meet an expected increase of 0.8%.

At the close, the Dow Jones Industrial Average gained 49 points to 16,322, the S&P 500 gained 5 points to reach 1859, and the Nasdaq fell 11 points to 4308. The NYSE primary market traded 959 million shares with total volume of 3.8 billion shares, and the Nasdaq crossed 2.5 billion shares. Advancers outpaced decliners on the Big Board by 1.5-to-1, but on the Nasdaq, decliners led by 1.2-to-1.

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Chart Key[1]

In February, the S&P 500 rose 4.3%, erasing all of January’s losses, and the premium over its 17-month moving average jumped to 14% from 11% in January. Although it is the highest premium shown on the chart, the record premium was an astounding 16.7% at the end of December, which set the market up for a reactive 3.6% selloff in January.

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With a follow-through new closing high on Friday, the 500 has confirmed the breakout from a bullish ‘V’ reversal. The former resistance line at 1850 now becomes both an inflection point and support line.


Investors and traders alike welcomed the long-awaited breakout of the S&P 500 from the stubborn resistance at 1850. It took three months and three tries at the barrier before it finally gave way, and Friday’s break was conclusive enough to call it a “confirming” event.

However, the failure of Nasdaq and the Russell 2000 and the modest breadth of 1.5-to-1 on the NYSE are reasons enough to hold back a full endorsement of the breakout.

There are several other factors that cloud the 500’s advance to new highs: Neither the Dow Jones Industrials nor the Dow Jones Transportation Average are close to a breakout. Our readers are aware of my reliance on the transports because of their predictive economic value. As Sy Harding said Friday[2], “the breakout by the S&P 500 (and always more volatile Nasdaq) would be more convincing if it were being confirmed by the DJIA and DJ Transportation Avg.”

Then there is the Russian incursion into the Crimea … so let’s hold back a few more days to see how this impacts the world’s markets and the overall technical picture before we leap into new investments.

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].

  1. [Image]: https://investorplace.com/wp-content/uploads/2013/12/chart-key.gif
  2. Sy Harding said Friday: http://www.streetsmartpost.com/2014/03/01/it-would-be-more-convincing-if-transports-were-breaking-out/
  3. click here: http://www.bloomberg.com/apps/ecal?c=US
  4. click here: http://www.bloomberg.com/markets/economic-calendar/

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