New Uptrend Ahead?

Major indexes were mostly flat for the week after going through four out of the five days with more than 1% moves from high to low on the Dow Jones Industrials. 

Going back over the last ten sessions, eight have had more than 100 point swings on the Dow but for the month all the major indexes ended in positive territory.  For the year, the S&P 500 is down -1.2%.

Comparing this to a year ago, the Dow Jones Industrials were down approximately -19% to 7062 by this time last year. 

Looking At My Screens

This week, we waited for Tuesday’s sell off and then realigned our positions to “longs” as our indicators point to higher prices ahead for the short term.  

I find it hard to believe myself, but it does look like we’re poised for higher prices ahead.  The Russell 2000 has already cleared its 50 Day Moving Average and if or when the S&P 500 and Dow Jones can clear their respective 50 Day Moving Averages, it’s quite likely that new strength could come into the markets. 

As always, one cannot listen to the news or the talking heads and just keep a close eye on what the charts are telling us.  As I said in this week’s webinar, I try not to be a bull or bear because that clouds your vision and you look for things to support your bias.  It’s better and more effective just to be agnostic and see what is happening as accurately as you can. 

The picture is mixed, both technically and fundamentally, but things do point to a bias to the upside for the short term.

Looking at a couple of charts, we see the S&P 500 below:

Chart courtesy of www.stockcharts.com

On the Point and Figure chart, we can see what is happening with all the “noise” taken out of the market.  The index is in a confirmed uptrend with a profit target of 1295 and you can see the boxes have made an up trending pattern of higher highs and higher lows.  With the most recent two columns, we’ve moved into a consolidation phase as the blocks build a sideways pattern but still with a trend of higher lows.  A break below 1050 would indicate a structural breakdown and the potential for lower prices ahead.

Looking at a standard chart of the S&P we see the following:

Chart courtesy of www.stockcharts.com

The price is just below the 50 Day Moving Average, and on the candle sticks, those last two prints show a long tail down and a narrow box which indicates that sellers tried to push prices down but failed.  At the bottom, MACD shows the index still in an up trend, although one that has flattened somewhat as we move sideways here over the last few days.  At the bottom is the 200 Day Moving Average, some 7% below current levels.

Chart courtesy of www.stockcharts.com

And above, the Advance/Decline shows the uptrend continuing to nearly all time highs with the 50 Day Moving Average continuing to slope upward.

The View from 35,000 Feet

It was an eventful week on the news front with Fed Chairman Bernanke telling Congress that the economy was not yet self sustaining, in spite of the major dollars that have been poured on this fire and so interest rates would remain low for “an extended period.” 

The economic reports were mixed with the Case/Shiller housing index improving, along with durable goods, the 4th Quarter GDP and Chicago Purchasing Managers Index.

On the downside, consumer confidence was down, along with new home sales while initial and continuing unemployment claims were up.  And on Capitol Hill, opposing sides dug in over their disagreements on a new health care plan.

The Week Ahead

This week promises to be no less intense on the news front as we’re facing a slew of economic reports regarding construction, auto sales, and the monthly giant on Friday, the February Non Farm Payrolls Report. 

Major Economic Reports: 

Monday: January Personal Income, January Personal Spending, February Institute of Supply Management Index 

Tuesday: February Auto Sales 

Wednesday: ADP Employment Report 

Thursday: Initial Unemployment Claims, Continuing Unemployment Claims, January Factory Orders 

Friday: February Non Farm Payrolls, February Hourly Workweek, January Consumer Credit

 Sector Spotlight: 

Leaders: (TAO) China Real Estate, (EDV) Vanguard Extended Duration Treasuries 

Laggards: (TUR) iShares Turkey Index, (TAN) Claymore Global Solar, (UNG) United States Natural Gas Fund 

This will likely be another turbulent week.  I’ll keep in touch as things develop. 

All the best,

John

John Nyaradi

Publisher

Wall Street Sector Selector

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