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Thursday, January 31, 2013

The Market's Cracks Are Starting to Show

 Steep angle of the advance appears to be breaking; MACD is hinting at a loss of momentum

By Sam Collins, InvestorPlace Chief Technical Analyst

New York, Jan.31, stock investing .- Stocks started off Wednesday on a down note following the Commerce Department’s report that Q4 GDP contracted by 0.1%. Analysts had expected 1% growth.
The decline was mostly attributable to a 22.2% cut in defense spending, but resulted in the first contraction since the beginning of the recovery in 2009. But there was positive news in the study in that personal consumption expenditures rose 2.2%, and that category accounts for 70% of GDP.
Amazon.com (NASDAQ:AMZN) rose 4.8% after reporting better-than-expected operating income, and Boeing (NYSE:BA) gained 1.3% following better earnings despite management’s guidance of lower earnings for 2013 than previously anticipated.
At Wednesday’s close, the Dow Jones Industrial Average was off 44 points at 13,910, the S&P 500 fell 6 points to 1,502, and the Nasdaq was off 11 points at 3,142. The NYSE traded 704 million shares and the Nasdaq crossed 452 million shares. Decliners outpaced advancers on the Big Board by 1.8-to-1, and by 2.3-to-1 on the Nasdaq.
Trade of the Day Chart Key
A sharp advance like that on the Dow Jones Industrial Average chart usually can’t be maintained for much longer than two months. The industrials have held onto it for almost three months, but that streak may be coming to an end.
Wednesday’s lower close was very near a key reversal day. Also note the slightly curving MACD red line, the first hint of a loss of momentum.
The Dow Jones Transportation Average accomplished a steep angle of advance that must be close to a record for duration, degree, and total advancing days. But like the industrials’ chart, the angle is close to breaking. The MACD fast line (red) shows a clear hook down, and its blue histogram is close to entering bearish territory. 
Conclusion: There may be more new highs in the next several days; however, prudence dictates that new positions be entered with a high degree of caution. All internal indicators are overbought, and less optimistic economic indicators could follow the negative GDP numbers. It is clearly time to consider taking profits on trading positions.
All investors should become aware of important support zones for both the major indices and stocks they wish to own since a buying opportunity may shortly occur.
For the S&P 500, the first line of support is at 1,480 (20-day moving average), then the support line at 1,474, and finally, at 1,440 (50-day moving average). For the Dow, the first support is at 13,605 (20-day moving average), then the support line at 13,653, and finally, 13,277 (50-day moving average). The Nasdaq’s support zones will be covered on Friday. ...

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