New Buy Signal Bodes Well for S&P 500

Stocks headed higher Friday, again led by the Nasdaq Composite, which broke 5,000 for the second time this year, closing at the highest level in 15 years. Overall volume increased due to quadruple witching — the expiration of stock index futures, stock index options, stock options and single stock futures.

The euro gained 1.3% to $1.081, up from $1.067. This caused a rally in futures, which drove crude oil higher by 2.4% to $46.58 a barrel. Gold rose 1.3% to $1,184.80 an ounce, and the yield on the benchmark 10-year Treasury note fell to 1.93%, as government bonds were in demand.

Biogen Idec Inc (NASDAQ:BIIB) jumped 9.8% following positive results for a new Alzheimer’s drug still in testing. The iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB) rose 0.4% but had been up as much as 2.7% earlier in the session.

KB Home (NYSE:KBH) rose 8.4% on better-than-expected earnings. The iShares Dow Jones US Home Const. (ETF) (NYSEARCA:ITB) gained 2% in anticipation of today’s release of the existing home sales report for February, which will be issued at 10 a.m. (See my Trade of the Day.)

At Friday’s close, the Dow Jones Industrial Average gained 160 points at 18,128, the S&P 500 rose 19 points to 2,108, the Nasdaq jumped 34 points to 5,026, and the Russell 2000 rose 12 points to 1,266.

The NYSE’s primary market traded 2.2 billion shares with total volume of 4.3 billion shares, and the Nasdaq crossed 2.6 billion shares. On the Big Board, advancers outpaced decliners by 3.9-to-1, and on the Nasdaq, advancers led by 1.5-to-1.

For the week, the Dow rose 2.1%, the S&P 500 gained 2.7%, the Nasdaq jumped 3.2%, and the Russell 2000 gained 2.8%.

S&P 500 Chart
Click to Enlarge

Chart Key

Last week, the S&P 500 may not have possessed the pizazz of the Nasdaq or Russell 2000; however, it maintained its bullish stance. By breaking from the resistance (now support) line at 2,093 and the 20-day moving average at 2,089, it set its target squarely on the all-time high at 2,119.59 and the closing high at 2,117.39.

Immediate support is at 2,089 with more substantial support at 2,064 to 2,065. MACD issued a brand-new buy signal on Friday’s close.

Conclusion

The Dow Theory “non-confirmation” remains a negative to a major advance (see March 17 Daily Market Outlook) in higher-quality stocks. However, the more volatile indices (Russell 2000 and Nasdaq) have broken to new highs and now, with the addition of Apple Inc. (NASDAQ:AAPL) to the Dow Jones Industrial Average, another surge in the technology sector could make the “non-confirmation” history.

As illustrated above, the S&P 500 has executed a new MACD buy signal, and coupled with it is a refreshing buy signal from the momentum indicator (not shown). Thus, the market is now in a strong position to finally break the barriers that restricted it to a narrow trading range since mid-December.

If we get a break of the highs, my initial target for the S&P 500 is 2,210 with a year-end target of 2,250.

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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