Following Tuesday’s big breakout, stocks closed mixed after some initial profit-taking. European difficulties dominated the early trading as concerns over the liquidity of eurozone banks and the recent hike in Spain’s bond rates reminded traders that problems there still exist. But U.S. factory orders rose for the first time in three months, and steady buying brought prices back to above breakout levels.
At the close, the Dow Jones Industrial Average was up 21 points to 12,418, the S&P 500 rose slightly to 1,277, and the Nasdaq fell fractionally to 2,648. The NYSE traded 758 million shares, and the Nasdaq crossed 436 million. On the Big Board, advancers versus decliners were even, but on the Nasdaq decliners were ahead by 1.5-to-1.
In Tuesday’s Daily Market Outlook, I noted that the S&P 500 had yet to break decisively through its 200-day moving average and that the stochastic was “non-confirming” in that its highs were lower than prior highs. But these concerns were satisfied by the S&P 500’s clean break from its 200-day moving average and an improving stochastic, which is now almost flat. The index still must exceed its October high at 1,293 in order to clinch the turn up, but it is clear that the bulls are now in charge.
Although the Nasdaq has yet to follow the positive course of the Dow indices and the S&P 500, it has made several very positive steps in that direction. First, and most importantly, it not only broke through its 50-day moving average, but did it with the gusto of an opening gap, which, on Tuesday, even popped through the 200-day moving average on an intraday thrust.
Its initial support is now at the top of the gap (2,642), which it reversed from yesterday — another positive. Additional support is at the 50-day moving average at 2,616 and the 2,600 line. Resistance remains at the 200-day moving average at 2,660 and the downtrend line now at 2,665. Finally, there is resistance at the October high at 2,753.
Conclusion: The intermediate-term trend has turned positive with a double confirmation from the Dow indices, covered on Wednesday, and the decisive break of the S&P 500 through its 200-day moving average. The Nasdaq is still lagging but is showing signs of improvement.
On the bearish side, overall volume was not as high as it should be for a major breakout. Also, there has been very little heard from Europe since the late December “accord,” and we will wait for the next shoe to fall to see how our markets hold up in their crisis.
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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.
