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Large Number of Sell Signals Should Give Traders Pause

There are two things I'd like to see before making additional bullish commitments


On Friday, the major indices opened lower and then spent the remainder of the session attempting to overcome the early losses. The initial sell-off was largely due to Ukraine saying it had destroyed part of a column of Russian armored vehicles that had crossed its border. But Russia denied any incursion or destruction of equipment, and stocks closed the day on a positive note. A rally in the final hour led to the S&P 500 closing only slightly lower and six of 10 sectors ending in the red.

Investors flooded the U.S. Treasury market, driving the yield on the 10-year note to 2.34%, its lowest close since June of last year.

The Nasdaq closed in the black, again driven by the biotech sector. The iShares Nasdaq Biotechnology (IBB) rose 0.9%, gaining 4.7% for the week. And energy posted a gain of 0.7% as it rebounded from losses earlier in the week.

Producer prices rose 0.1% in July, in line with expectations. The Empire State Manufacturing Survey for August came in at 14.7, missing estimates of 15.5. Industrial production rose 0.4%, slightly above expectations, and the University of Michigan Consumer Sentiment Index fell to 79.2 versus a consensus expectation of 81.7.

At Friday’s close, the Dow Jones Industrial Average fell 51 points to 16,663, the S&P 500 was unchanged at 1,955, the Nasdaq rose 12 points to 4,465, and the Russell 2000 fell 2 points to 1,142. The NYSE’s primary market traded 757 million shares with total volume of 3 billion shares, and the Nasdaq crossed a total of 1.8 billion shares. The increased volume was attributed to the expiration of August options.

For the week, the Dow rose 0.7%, the S&P 500 gained 1.2%, the Nasdaq rose 2.2%, and the Russell 2000 was up 0.9%.

Nasdaq Chart
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Chart Key

The Nasdaq led the other indices Friday thanks to strength in tech and biotech. The gain put it cleanly above near-term support at its 20-day moving average at 4,414 and 50-day at 4,396. It is now within striking distance of its June/July highs with a strong MACD buy signal supporting its upward momentum.

RUT Chart
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Despite a bullish MACD for the Russell 2000, Friday’s attack on the 200-day moving average failed again. The index managed to strike an intraday high above the barrier, but like the week before, it closed below it. And that lower close triggered a minor sell signal from my proprietary indicator, the Collins-Bollinger Reversal (CBR).


The Nasdaq’s advance is being fueled by demand for large-cap technology and biotech stocks. Meanwhile, small-cap stocks are being sold and proceeds seem to have been going to the Nasdaq. Buyers also appear to be heading for the mid caps of the S&P 500 (see Aug. 15 Daily Market Outlook).

Note that the S&P 500 is just 2 points away from resistance at its 50-day moving average. A push above that important line this week, along with a fresh high by the Nasdaq, could change the direction of the entire market. But given that the CBR indicator flashed the largest number of sell signals in two years on Friday, we should wait for a confirming new closing high by the Nasdaq and a close above the S&P 500’s 50-day moving average before making additional bullish commitments.

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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