The Stock Market Should Keep Plodding Higher

Stocks fell modestly Tuesday on rumors that the Federal Reserve may raise rates. The rumors of a rate hike resulted from what was interpreted as “hawkish sounding talk” from “a few” Fed officials.

But overall, the stock market decline that followed was relatively mild. The Dow Jones Industrial Average finished off 0.5%, the S&P 500 dipped 0.6% and the Nasdaq Composite dropped 0.7%. The Fed often “floats” an idea to see how it is received and most often does nothing. Plus, it would be very unusual for the Fed to take action prior to a presidential election. Today the Fed plans to release the minutes of its last meeting, though, so we may know more of their leanings then.

U.S. consumer prices were reported as flat in July, an inflation indicator that is watched closely by the Fed. That’s another indicator that the Federal Reserve will most likely do nothing prior to December.

Energy stocks were strong as the closing price of crude oil rose again. On Tuesday, WTI closed at $46.58 per barrel, up 1.8%. Stocks that were influenced by the rise in crude were Chesapeake Energy Corporation (NYSE:CHK), up 7.45%, and Kinder Morgan Inc (NYSE:KMI), up 2.25%. Occidental Petroleum Corporation (NYSE:OXY) rose 1.28%.

Some bank stocks were stronger due to the rumor of a rate hike: Bank of America Corp (NYSE:BAC) gained 1%, and Morgan Stanley (NYSE:MS) — see my Trade of the Day –gained 1.9%.

At the close, the major indices looked like this:

  • Dow Jones Industrial Average: -84 to 18,552
  • S&P 500: -12 to 2,178
  • Nasdaq Composite: -35 to 5,227
  • Russell 2000: -11 to 1,231

The New York Stock Exchange’s primary market traded 747 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 1.7 billion shares. On the Big Board, decliners outpaced advancers by 2.2-to-1, and on the Nasdaq, decliners led by 2.3-to-1. Block trades on the New York Stock Exchange increased to 4,832 from 4,690 on Monday.

MDY stock market


A bull channel is a consolidation pattern that often follows a big move up, as seen in the charts of the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY) above and iShares Russell 2000 Index (ETF) (NYSEARCA:IWM) below. A tight channel up means indecision with a bullish bias. This is borne out by very light volume on both charts along with flat MACD indicators. Note that on the advances of June and the profit-takings in May, both charts show high volume and extreme oversold/overbought runs on the MACD.


Again, like the MDY, we observe a very tight period of consolidation. Volume and MACD are basically the same, but the Russell 2000 IWM ETF has a slightly sharper angle, and its 50-day moving average and first support line (119) is farther from yesterday’s closing price. This tells us that the IWM is slightly more volatile than the MDY and thus could fall further before reaching its first support line. But, like the MDY, it too remains bullish.


Since hitting new highs in July, the market’s advance has been very wearisome. For example, just as I think I’m observing a possible bullish break — as on Monday’s close near the high of the day — the market reverses with a close near the low of the day on Tuesday’s charts.

The slow and steady advance has maintained an uptrend, and the technicals still support a breakout to the upside. There is not a single adverse technical signal, such as spikes on high volume, head and shoulders, etc.

And so we will continue to ride this bull with the expectation that he will decide to head north.

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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