Friday ended with the Dow Jones Industrial Average at a two-and-a-half-year high, prompted by the resignation of Egypt’s president and the possible end to the crisis that has captured the world’s attention for over two weeks. Financial stocks, and especially mortgage insurers, were strong on a U.S. government proposal to reduce the size of the Federal Housing Administration, which competes directly with the private mortgage industry.
Daily Stock Market News
Dow: +44 points at 12,273
S&P 500: +7 points at 1,329
Nasdaq: +19 points at 2,809
Volume and Breadth
NYSE: 999 million shares traded; advancers ahead 2.9-to-1
Nasdaq: 532 million shares traded; advancers ahead 2.2-to-1
Futures and Related ETFs
March Crude Oil: -$1.15 at $85.58 per barrel; Energy Select Sector SPDR (NYSE: XLE) -93 cents at $73.37
April Gold: -$2.10 at $1,360.40 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) -3.51 points at 206.29
What the Markets Are Saying
Mid-week there was concern by several analysts that the initial support of the S&P 500, which was Monday’s low, was in danger of being broken. The low that they were fixed on was 1,312. But the concern proved short-lived. The S&P 500 fell to just under 1,312 on Thursday, before reversing and running to new highs on Friday.
Thus far, the major indices have survived every chart test in fine style. For the Dow, it is 12,150, and for the Nasdaq, it is 2,766. The 20-day moving average for each index is also a near-term support number to watch:
- Dow: 12,011
- S&P 500: 1,301
- Nasdaq: 2,748.
I can understand the concern of many technicians about the rapid advance of stocks despite the overbought readings of the internal and sentiment indicators. And I’ve expressed those concerns in the Daily Market Outlook. But rather than focus on such an immediate number as a weekly low, I would focus on the trendline that connects the late September low of S&P 1,040 to the correction low of November at 1,174 since it is a significant near-term support line. That line, which is now at 1,290, rests between the 20- and 50-day moving averages, and a penetration of it would no doubt put pressure on the 50-day moving average and, thus, the intermediate trend of the market.
But how about near-term targets?
The S&P 500 has progressed well into the resistance created from January to June of 2008 at roughly 1,300 to 1,400. Zones of trading that take up to six months in the making can be serious obstacles to an advance; therefore you can understand why technicians are nervous over a possible reversal since the S&P 500 has penetrated into that resistance zone by one-third.
So where do we go next to find the market’s most immediate target — that is assuming stocks continue to rise despite the current overbought condition?
Our old friend Fibonacci provides the most used analytical tool. In fact, my initial target for this year was based on a Fibonacci retracement of 66.6% of the bear market, which yielded a target of around 1,278. The next Fibonacci number is at 76.4% of the bear market, and that gives a target close to 1,350.
Most of this analysis may be of little interest to long-term stock holders. But to the intermediate- and short-term traders, it is an imperative. By knowing where the key resistance/supply zones hover over the market, we are gaining insight into the psychology of the markets. Those blocks, or zones, of resistance represent significant areas where investors bought stocks three years ago. Many have held through the worst bear market in their lifetime but can’t wait to get their money back. When I say I am a “cautious bull,” it is because experience has taught me to be wary when stocks approach major resistance zones.
For one stock I am very bullish on, see the Trade of the Day.
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.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
