Dow Breakout Is Crucial to Market’s Continued Success

by Sam Collins | April 23, 2014 2:57 am

Despite modest selling later in the day, the S&P 500 slugged out its sixth straight gain Tuesday. Positive earnings reports from several high-profile companies helped the index. Netflix (NFLX[1]) rose 7% after beating earnings estimates, as did United Technologies (UTX[2]), up 0.8%, and Travelers (TRV[3]), up 0.6%.

McDonald’s (MCD[4]) fell 0.4% after failing to meet expectations, but this didn’t appear to have much impact on the market’s final result.

Existing home sales fell slightly in March to the lowest level since July 2012. And the February House Price Index rose 0.6%, which exceeded estimates.

At Tuesday’s close, the Dow Jones Industrial Average rose 65 points to 16,514, the S&P 500 gained 8 points at 1,880, and the Nasdaq jumped 40 points to 4,161. The NYSE’s primary market traded 11.5 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 1.9 billion shares. On the Big Board, advancers outpaced decliners by 2.8-to-1, while on the Nasdaq, advancers were ahead by 2.6-to-1.

DJT Chart
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Chart Key[5]

The Dow Jones Transportation Average broke to a new high Tuesday, smashing through a quadruple-top backed by a strong buy signal from MACD. Technically, this new high is a strong confirmation that the transports should make further new highs.

DJI Chart
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The Dow Jones Industrial Average is again knocking on the door of a major breakout. In order to establish a confirmed Dow Theory buy signal, the index must exceed the closing high of 16,576, made on Dec. 31, and the all-time high at 16,632, made on April 4.

Conclusion: The Dow Jones Industrial Average and its companion Dow Jones Transportation Average are in the unique position of determining the near- and intermediate-term trends of the broad market.

A convincing close by the industrials above the Dec. 31 closing high (16,576) and April 4 all-time high (16,632) is needed to trigger a confirmed Dow Theory buy signal. If the industrials fail to achieve these goals, we will be faced with another “non-confirmation” and the high probability of a pullback, and perhaps even a “correction.”

The chances of a breakout are high, but as usual, don’t anticipate the break. Even if you end up paying several points more for a stock that is cheap insurance, since a reversal could result in serious loss.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here[6].

For a list of this week’s economic reports due out, click here[7].

  1. NFLX:
  2. UTX:
  3. TRV:
  4. MCD:
  5. [Image]:
  6. click here:
  7. click here:

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