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Stick With 60% Stocks/40% Cash Until the Fog Clears

S&P 500's 'breakouts' to new all-time highs have lacked momentum


On Monday, a resurgence of technology, biotech and small-cap stocks drove the Nasdaq up 0.9% and the Russell 2000 up 1%. The S&P 500 gained 0.4%, while the Dow industrials rose 0.1%.

There was no news to account for the rally except for some M&A activity. AT&T (T) agreed to acquire DIRECTV (DTV) for $95 per share. And AstraZeneca (AZN) fell 12% following a rejection of Pfizer’s (PFE) latest offer.

The yield on the 10-year Treasury note rose to 2.54%.

At the close, the Dow Jones Industrial Average gained 21 points at 16,512, the S&P 500 rose 7 points to 1,885, and the Nasdaq climbed 35 points to 4,126. The NYSE’s primary market traded just 584 million shares with total volume of 2.6 billion shares. The Nasdaq crossed 1.6 billion shares. Advancers outpaced decliners by 1.8-to-1 on the Big Board and by 2.3-to-1 on the Nasdaq.

SPX Chart
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Chart Key

Although still in a long-term uptrend since February, the S&P 500 has been going nowhere. It made several new all-time highs, but the “breakouts” lacked momentum supported by volume, and the index fell back to its 50-day moving average six times.

On Monday, it advanced from the 50-day again with its highs and lows within a very narrow Bollinger Band spread.

Nasdaq Chart
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The Nasdaq has experienced more volatility than the S&P 500, but it too is trading within the narrow channel of the Bollinger Bands. It is also bounded on the bottom by the 200-day moving average and on the top by the 50-day moving average. Its MACD is now in bullish territory.

Conclusion: The bulls should get some encouragement from Monday’s round of bargain hunting. But it is difficult to discern much from the recent market action. Monday’s volume was the sixth lowest of the year, and perhaps the oft-repeated saying “never sell a dull market” will prove accurate. But until the fog clears, I’d prefer to stick with our 60% equities/40% cash split.

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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