Stocks closed mixed yesterday, as a key economic report failed to inspire buyers. But gold jumped to a new high as pressures mounted on the Federal Reserve to take further measures to avoid a double-dip recession.

Even though the U.S. Commerce Department said retail sales in August rose at the fastest pace in five months and beat forecasts, the new round of economic uncertainty abroad had the most impact on trading here. German investor confidence fell sharply in September, and industrial production in the euro zone in July was flat. 

Volume was again light on the major U.S. exchanges. But money was seeking gold, and the metal jumped 2% to a new high and its biggest gain since February. 

Gold bullion is up 16% for the year, and some analysts are predicting a move to above $1,300 an ounce before the end of the year. After the market closed, AngloGold Ashanti Limited (NYSE: AU) said that it will cancel its hedges against the risk that gold prices could fall. This alone could push gold even higher today despite the obvious risk of a price bubble.

Best Buy Co., Inc. (NYSE: BBY) reported Q2 earnings that beat all estimates. The big electronics retailer said that diluted EPS grew 62%, and the stock jumped $2.08 or 6% to $36.73. J.C. Penney Company, Inc. (NYSE: JCP) leapt 7.4% after announcing that the company expects to report better same-store sales in Q4.

Technology stocks were the best performers yesterday, with Hewlett-Packard Company (NYSE: HPQ) up 2.6% and Cisco Systems, Inc. (NASDAQ: CSCO) up 0.9%.

The 10-year Treasury yield fell to 2.668%, and the euro climbed to just over $1.30.

At the close, the Dow Jones Industrial Average was off 18 points to 10,526, the S&P 500 fell less than a point to 1,121, and the Nasdaq rose 4 points to 2,290. 

Volume was again very light with just 923 million shares trading on the NYSE and 583 million shares on the Nasdaq. Decliners were slightly ahead of advancers on both exchanges.

What the Markets Are Saying

Stocks have made an impressive advance from the lows of August. Just 10 sessions ago, investors were wondering if the fragile lows that had been pounded by sellers for five days would hold. The Dow was at 9,940, the S&P 500 was at 1,040, and the Nasdaq was at 2,100. 

But now with the Dow up 6.6%, the S&P 500 up 7.75%, and the Nasdaq up 9%, instead of renewed optimism there is reason to question whether the advance has the ability to punch through the resistance zones at Dow 10,630 to 10,720, S&P 1,115 to 1,131, and Nasdaq 2,274 to 2,309.

Even though buyers have succeeded in penetrating the bearish resistance line drawn from the April high to the August high, and each index has closed above its 200-day moving average, a breakout has not yet occurred. And volume does not support a further move higher.

Now the bulls must depend upon the Dow Jones Transportation Index to confirm a breakout above its most recent highs at 4,500 and 4,524. And even though the index had a gain of just over 3 points yesterday, in the afternoon it came very close to signaling a reversal as it steadily fell from 4,486 to its close at 4,451. Had the transports closed on a minus, a triple-top would have been confirmed.

Now with a plus on the Industrials and a minus on the Transports, a serious technical problem rears its head. Have the Dow indices just flashed a “non-confirmation”? If so, the pressure will quickly shift to the bears.

Today’s trading is crucial for the bulls. Along with the problem of a possible “non-confirmation,” our internal indicators are now rolling to within a day or so of sell signals, and volume is still at very low levels. It is becoming doubtful that they can keep the uptrend intact. Traders should prepare for a reversal but hold off until the signal of a turn down is given.

Get one way to short the market here.

Today’s Trading Landscape

Earnings to be reported after the close include: AAR Corp., Apogee Enterprises, CLARCOR and Dress Barn.

Economic reports due: MBA purchase applications, Empire State Manufacturing Survey (the consensus expects 5), import and export prices, industrial production (the consensus expects 0.2%, and 74.9% for capacity utilization rate), and EIA petroleum status report.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

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