Don’t Ignore This Bull Market Signal

The S&P 500's 17-month moving average issued a long-term buy

Stocks began December with a mildly lower close. The S&P 500 was off 0.5%, and the Dow Jones Industrial Average and Nasdaq both lost 0.4%.

The retail sector led the way down following a report of sluggish Black Friday sales. The SPDR S&P Retail (ETF) (XRT) fell 2.2%. Dow members Nike Inc (NKE) and Wal-Mart Stores, Inc. (WMT) lost 1.5% and 1.8%, respectively. Target Corporation (TGT) declined 1.3% after reporting its website was having technical problems on Cyber Monday.

Energy stocks were some of the day’s best performers, up 0.4% despite a 0.1% drop in oil to $41.65 a barrel.

Technology stocks also did well, boosted by semiconductor stocks. The iShares PHLX Semiconductor (SOXX) gained 1.1%.

The euro fell 0.3% against the U.S. dollar at $1.0565. Gold was up 0.9% to $1065.80 an ounce.

At Monday’s close, the Dow Jones Industrial Average fell 79 points to 17,720, the S&P 500 lost 10 points at 2,080, the Nasdaq declined 19 points to 5,109, and the Russell 2000 was down 4 points to 1,198.

The NYSE Composite’s primary exchange traded over 1.1 billion shares with total volume of 4.2 billion. The Nasdaq crossed 2.2 billion shares. On the Big Board, decliners outpaced advancers by 1.3-to-1, and on the Nasdaq, decliners led by 1.1-to-1.

S&P 500 Chart
Click to Enlarge

Most Daily Market Outlook readers are familiar with the S&P 500’s 17-month moving average predictor. It has been uncanny in its accuracy and helped its followers beat buy-and-hold investors in the long term.

It is unusual for this indicator to whip us out and then back in again — i.e., “buy, sell, buy.” In fact, it has occurred just three times in the past 16 years. But back-to-back “sell, buy, sell” has, to the best of my knowledge, never occurred. Therefore, the recent move back to bull market position should be taken seriously.

Conclusion

The reaction to weakness in Black Friday sales could result in a pullback in the fragile SPDR S&P MidCap 400 ETF (MDY) and iShares Russell 2000 Index (ETF) (IWM), which I covered in the previous Daily Market Outlook.

An adjustment back to the support line in the bull channel, at about $115 in IWM for example, would, I think, be a buying opportunity. On the other hand, a break of IWM’s low at about $106 could mean the bear is lurking.

For now, traders should sell into rallies and buy into pullbacks. Long-term investors should continue to hold high-quality, dividend-producing equities.

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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