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Keep Your Eyes Peeled for Short-Term Bargains

The markets continue to show us signs of long-term strength; use any off days to buy sensibly priced stocks


The stock market had a strange day of directionless trading Friday that resulted from an odd fall in the unemployment rate along with a higher jobs level.

An hour before the opening, the April jobs report showed that 288,000 nonfarm jobs were added vs. an expected 210,000. We also received reports that the unemployment rate dropped from 6.3% to 6.7%.

Of course, there is little doubt that the unusual drop in unemployment resulted from an 806,000 drop in the civilian labor force, which is not something to crow about. estimates that if the labor force had stayed constant, the unemployment rate would have increased to 6.8%.

A couple other important notes:

  • Pfizer (PFE) fell 1.3% following the rejection of an improved buyout offer for AstraZeneca (AZN).
  • Utilities (XLU) fell 2% but still hold the lead in sector performance for the year, up 12% before dividends. The second-best sector performance is energy (XLE), up 5.3% for the year.

On the close, the Dow Jones Industrial Average fell 46 points to 16,513, the S&P 500 lost 3 points to finish at 1881, and the Nasdaq dropped 4 points to 4124. The New York Stock Exchange primary market traded 700 million shares with total volume of 3.1 billion shares, while the Nasdaq crossed 1.8 billion shares. Advancers outpaced decliners on the Big Board by 1.3-to-1, and on the Nasdaq, advancers were just slightly ahead of decliners.

For the week the DJIA gained 0.9%, the S&P 500 rose 1% and the Nasdaq advanced by 1.2%.

S&P 500 djia
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Chart Key

The S&P 500’s intraday high at 1891.33 didn’t exceed its all-time intraday high but was higher than its all-time closing high of 1,891. On the close, both a CBR sell and a bearish key reversal were triggered from a mere 2.54-point decline. If stocks continue lower following these negative signals, they should run into substantial support immediately below the current levels. Support exists first at the conjunction of the 20- and 50-day moving averages at 1,862, and then at the support band at 1,813 to 1,850.

S&P 500 Bollinger Bands djia
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Note that the distance between the upper and lower Bollinger bands is narrowing. This is a sign of decreasing volatility and usually leads to a period of trading within the bounds of the bands until prices break in one direction or the other. When the break occurs, it could result in a violent move up or down. Note in January that the narrowed bands broke down until a bottom was made in February. The January breakdown, however, is not predictive as to the direction of a break from the current narrowing. It could break in either direction.

nyse composite bullish S&P 500 djia
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The NYSE Composite Index is composed of all stocks traded on the New York Stock Exchange, thus it is a broad cross-section of the U.S. and parts of the world’s economies. Technically it is another measurement of the overall trend. In February, this index exceeded its all-time high made in October 2007, and it’s currently comfortably above that high.

This, along with other indicators and charts, tells us that the long-term trend is intact.


The AAII Sentiment Survey for May 1 showed a drop in bullish sentiment from 34.50 to 29.77. This is more in line with the increasing fear of the small investor reported in April. The “wall of worry” is again under construction, and Friday’s meek reversals will add a few more bricks to that wall.

On April 30, the DJIA broke to a new high and triggered a new Dow Theory buy signal. This is not a trading signal, but a confirmation of the overall direction of the market which, in the long term, should prove rewarding even for investors who buy now. Friday’s string of very mild reversals, along with the uncertainties in Ukraine, could result in a shallow decline and give the bulls an opportunity to pick up a few bargains.

As usual, I recommend caution and patience — buying stocks at a sensible price rather than chasing high-P/E stocks.

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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