On Tuesday, the anticipation of a favorable ruling from a German court and the likelihood of further stimulus from the Fed drove stocks higher. But the going was not easy as late profit-taking drove the Nasdaq to breakeven and took back much of the earlier gains from other major indices.
At the close, the Dow Jones Industrial Average was up 69 points to 13,323, the S&P 500 gained 4 points to 1,434, and the Nasdaq broke even at 3,105. Volume was relatively light with just 666 million shares trading on the NYSE and 356 million on the Nasdaq. Advancers led decliners on both exchanges by 1.4-to-1.
While the S&P 500 has sustained a break to four-year highs, that is not the case for the Nasdaq. Even though the index managed to close above March’s closing high, it still faces tough resistance from 3,134 to 3,139, the intraday highs of March. And by turning back from last week’s high, it failed to confirm a breakout.
The first line of support is at 3,087, followed by the 50-day moving average at around 3,000. Its internal indicators, like the MACD, are flat and currently of little help in forecasting the near-term trend.
Even though the Dow industrials have closed above their closing highs of March and April, the index has not fully established a clean breakout. Intraday resistance is from 13,330 to 13,338. A close above that zone would support a move to the next resistance area at about 13,700 — computed from the depth of the August correction.
Conclusion: The major indices are still struggling to confirm a major breakout despite a new closing high for the Dow industrials and a break to a four-year high for the S&P 500. Both the Dow industrials and Nasdaq are capped by intraday resistance, and the Dow transports are not close to breaking to new highs, trapped in a trading zone of about 250 points (see the Sept. 7 Daily Market Outlook).
For over a month, the market has been held back by news events that, if favorable, could result in a clean break. Instead the news from the European Central Bank is typically vague but laced with grandiose promises that all will be well.
The other imponderable is our own Fed. Traders have already anticipated that on Thursday Fed Chairman Ben Bernanke will announce a new stimulus plan — but it had better be strong since much of the market’s recent gains have taken, or discounted, a Q3-type of plan.
Nevertheless, the long-term trend is up. What we are trying to discern is the direction of stocks for the intermediate term (four to six weeks). Unfortunately, it is that time frame that is cloaked in an impenetrable haze of double talk. Until the fog clears, we remain on the sidelines. However, investors and traders alike should prepare to buy into any deep corrections.
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.
