Market Inches to New Highs on Minuscule Volume

On Tuesday, Federal Reserve Chair Janet Yellen made a slightly more dovish presentation than anticipated, and the stock market responded with appreciation. The Dow rose 0.5% and the S&P 500 added 0.3%. The Nasdaq gained 0.1% for its 10th straight gain, the longest winning streak in eight years.

Yellen appeared calm and confident as she presented a case for eventually raising rates but signaled that the Fed would be “patient.” She also assured Congress that rates would be raised after considering the impact of current low inflation and data indicating that job growth is lower than desired.

Home Depot Inc (NYSE:HD) reported better-than-expected earnings and rallied 4% despite a cautious outlook. This added 29 points to the Dow industrials’ close. Shares of JPMorgan Chase & Co. (NYSE:JPM) rose 2.5% after the bank’s investor meeting. Toll Brothers Inc (NYSE:TOL) gained 3.9% after reporting profits almost doubled in its January quarter. The iShares Dow Jones US Home Const. (ETF) (NYSEARCA:ITB) advanced 2.4%.

In economic news, the Case-Shiller 20-city Home Price Index for December rose 4.5%, which was higher than expected. The Conference Board’s Consumer Confidence Index fell to 96.4 in February where a decline to 99.6 was expected.

Crude oil dropped 0.3% to $49.28 a barrel. Gold futures lost 0.3%, falling to $1,196.90 an ounce.

At Tuesday’s close, the Dow Jones Industrial Average rose 92 points to 18,209, the S&P gained 6 points at 2,115, the Nasdaq added 7 points at 4,968, and the Russell 2000 gained 2 points at 1,234.

The NYSE’s primary market traded 716 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq, advancers led by 1.4-to-1.

VIX Chart
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The VOLATILITY S&P 500 (VIX), which is called the “fear index,” is not showing much fear.

The big decline in the VIX since the January market pullback is bullish in that the VIX is a contrarian indicator. High VIX levels equate to fear and falling stock prices while low VIX levels equate to a lack of fear and rising stock prices. In other words, investors are currently in “risk-on” mode.

IWM Chart
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Chart Key

The iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) closely tracks the Russell 2000 index, providing a good view of volume, as well as offering investors an opportunity to invest directly in all of the stocks that comprise the small-cap index.

Despite eight consecutive days of gains, the index has only advanced 2.7% from $119.45 on Feb. 11 to $122.66 on Feb. 24. The inching to new highs is no doubt due to low volume that is more like the Christmas and New Year’s holidays than a major breakout.


As noted in the previous Daily Market Outlook, there is no doubt that we are in a bull market, nor any doubt that all three trends (long, intermediate and short term) are now up. The big question is, how much longer can it last without at least a mild round of selling?

With MACD now overvalued and volume so low as to almost render a major move higher unsupportable, I can only suggest trading the long side while still waiting for a round of profit-taking before going for the big plunge.

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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