Don’t Bank on This Rally Just Yet

On Monday, despite low volume and low volatility, both the S&P 500 and Nasdaq registered their fifth consecutive increases. This is the first time in 2014 for these indices to have a five-session gain. The rally, however, lacked significance because of the low volume due to many markets remaining closed as an extension of the Easter holiday.

In business news, Pfizer (PFE) was reported to be considering the acquisition of AstraZeneca (AZN). This prompted some interest in the biotech sector, and iShares Nasdaq Biotechnology (IBB) jumped 2.3%. SunTrust Banks (STI) gained 1.5% after reporting better-than-expected earnings.

The Conference Board’s leading economic index for March met expectations with a 0.8% increase. It was the third consecutive increase for this index.

At Monday’s close, the Dow Jones Industrial Average rose 41 points to 16,449, the S&P 500 gained 7 points at 1,872, and the Nasdaq jumped 26 points to 4,122. The NYSE’s primary market traded just 692 million shares with total volume of 2.6 billion shares. The Nasdaq crossed 1.5 billion shares. On both major exchanges, advancers outpaced decliners by about 1.55-to-1.

DJI Chart
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Chart Key

The Dow industrials reversed from the April low and sliced through their 50-day and 20-day moving averages. On Monday, the index flashed a buy signal from its MACD, and thus, the next resistance is at its all-time closing high at 16,577.

Nasdaq Chart
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The Nasdaq found a selling climax low last week at its 200-day moving average. It penetrated the resistance line at 4,080 Monday, thus setting up 3,990 to 4,080 as a support zone. However, now things get serious as the index approaches the 20-day moving average at 4,142, and the 50-day at 4,224.

Conclusion: In the previous Daily Market Outlook, the Russell 2000 and S&P 500 were contrasted with regard to a “bifurcation”(split) that has developed in the broader market.

We now see the same phenomenon when comparing the Dow industrials, which appear to be on the verge of overcoming resistance and setting a new high, with the Nasdaq and the massive overhead that confronts it.

The strategy of only buying stocks that are very undervalued, while retaining a significant cash balance, is still in effect since bifurcated markets usually go nowhere.

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.

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