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Expect More Selling as Market Consolidates

Wednesday's action was positive, but we're not out of the woods yet


After two days of profit-taking, stocks rallied Wednesday, led by the technology-heavy Nasdaq, up 0.6%. But the higher-quality laden indices weren’t far behind, with the Dow industrials and S&P 500 up 0.5%.

The catalyst for buyers appeared to be the minutes from the Federal Reserve’s June policy meeting. The minutes indicated that, contrary to rumors, the Fed is not considering an early interest rate increase. The central bankers, however, did express the opinion that the public has displayed too much complacency with regard to risk. They also discussed its bond-buying plan’s exit strategy and focused on October for a final $15 billion taper.

Airlines were strong performers, boosting the Dow Jones Transportation Average 0.5%. Alcoa (AA) jumped 5.7% following a favorable earnings report after Tuesday’s close. The Container Store (TCS) fell 8.4% after an earnings miss. Matson (MATX) rose 6% following an upgrade from FBR Capital.

Gold futures rose 0.6% to $1,323.80 an ounce, and crude oil fell 1.1% to $102.29 a barrel.

At Wednesday’s close, the Dow Jones Industrial Average gained 79 points at 16,986, the S&P 500 rose 9 points to 1,973, and the Nasdaq gained 28 points at 4,419. The NYSE’s primary market traded 569 million shares with total volume of 2.8 billion shares. The Nasdaq crossed 1.7 billion shares. Advancers outpaced decliners by about 1.3-to-1 on both major exchanges.

Nasdaq Chart
Click to Enlarge

Chart Key

The most important feature of Wednesday’s rally was that the Nasdaq did not close below its March high at 4,372, and the day’s low at 4,388 did not penetrate its 20-day moving average at 4,382 or the near-term trendline at about the same level. However, MACD is bearish, and for that reason, the Nasdaq is not out of the woods.

Conclusion: Wednesday’s action was positive for virtually all of the major indices. However, we should remain cautious until the S&P 500 and Nasdaq break into high ground again.

A consolidation is occurring now, and the chances are strong that, despite the limited damage, we should expect more selling. A violation of S&P 500’s support at the zone of 1,925 to 1,950 would cause alarm.

The bears are growling with envy because they still haven’t invested. And they could growl loud enough to drive prices down to a Fibonacci 50% retracement (see Wednesday’s Daily Market Outlook). Don’t chase the rally since there will be plenty of time to invest if the market breaks higher on solid breadth and volume.

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.

Article printed from InvestorPlace Media,

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