It’s Best to Hold Cash in This Perplexing Market

by Sam Collins | April 10, 2014 2:51 am

Stock rallied Wednesday following the release of the minutes of the FOMC’s March meeting. The document indicated that the Federal Reserve has no fixed schedule as to when it will begin to hike interest rates, and could wait until 2015 to take any action.

With that news under their belts, traders jumped on technology stocks and other groups that had been hammered in the past week. In addition to a tech bounce, stocks with better-than-expected earnings benefitted from the Fed’s notes. Alcoa (AA[1]) rose 3.8% following an after-hours earnings report on Tuesday that beat estimates.

Biotech topped the list of winners for the second day, with iShares Nasdaq Biotechnology (IBB[2]) jumping 4.1%. The defensive utilities and telecom services sectors were the only negative performers.

At the close, the Dow Jones Industrial Average gained 181 points at 16,437, the S&P 500 rose 20 points to 1,872, and the Nasdaq was up 71 points to 4,184. The NYSE’s total volume was 3.3 billion shares, and the Nasdaq crossed 2 billion shares. Advancers outpaced decliners on both exchanges by about 2.75-to-1.

RUT Chart
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Chart Key[3]

The small-cap Russell 2000, as well as the mid-cap Nasdaq, has failed to recover above its 50-day moving averages and former breakout point at 1,182. And both indices have their MACD indicator stuck in bearish territory. This places the two major market movers of the past two years in opposition to the S&P 500 and Dow Jones Industrial Average.

Conclusion: The two most-watched indices, the Dow and S&P 500, have been able to maintain a trading range that is above their 50-day moving averages. This puts them in a position to challenge the former high and move through the band of selling that occurred last week.

But the Russell 2000 and Nasdaq have broken down and failed to recover. This is perplexing in that, on balance, the news has been favorable. Friday’s March employment report showed a pickup in hiring, the Fed has been supportive, and earnings have been relatively positive.

When stocks fail to respond to positive news and major sectors of the market fail to react normally, we are left with what amounts to a non-confirmation — a condition that, at best, means the market will move sideways for an extended time. In such an environment we should limit our trading and hold cash that would normally be committed to long-term equity investments.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[4].

For a list of this week’s economic reports due out, click here[5].

  1. AA:
  2. IBB:
  3. [Image]:
  4. click here:
  5. click here:

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