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Thursday, January 17, 2013

Until the S&P 500 Breaks This Level, Don’t Expect Much


Stocks will most likely trade sideways until the September high at 1,474.5 is exceeded

By Sam Collins, InvestorPlace Chief Technical Analyst
New York, Jan.17, stock picks .- On Wednesday, stocks opened mixed, traded mixed, and ended mixed. Boeing (NYSE:BA) fell sharply as problems with its new Dreamliner 787 worsened, but Apple (NASDAQ:AAPL) offset BA’s losses with a 4.15% recovery. However, the Dow backed off for the first time in six sessions.
Financial stocks rallied on strong earnings from Goldman Sachs(NYSE:GS), up 4.1%, and JPMorgan Chase (NYSE:JPM), up 1%. Genworth Financial (NYSE:GNW) headed the list of gainers on the S&P 500, jumping 8.9% after announcing that it would contribute $100 million to its mortgage-insurance unit.
Chipotle Mexican Grill (NYSE:CMG), which was on our list ofStocks to Sell in January, fell 5.5% after reporting that higher food costs would result in lower Q4 earnings.
At Wednesday’s close, the Dow Jones Industrial Average was off 24 points to 13,511, the S&P 500 closed breakeven at 1,473, and the Nasdaq rose 7 points at 3,118. The NYSE traded 599 million shares and the Nasdaq crossed 365 million. Decliners led advancers on the Big Board by 1.2-to-1 and on the Nasdaq by 1.5-to-1.
Wednesday’s record low close on the CBOE Volatility Index (VIX), sometimes called the “fear index” shows absolutely no fear. Investors are complacent — not selling, but only buying by a small margin. 

While U.S. investors are quietly buying stocks, the U.S. dollar has slipped due to the debt-ceiling issue, which could impact the rating of U.S. debt instruments. 
Note the possible head-and-shoulders forming on the PowerShares DB US Dollar Index Bullish(NYSE:UUP). The MACD issued a sell signal Wednesday, but the neckline at $21.65 must be broken if the formation is to be confirmed. 
Warning: Do not anticipate a break of a head-and-shoulders neckline, since over 60% of possible head-and-shoulders formations fail to break down.
The reverse head-and-shoulders formation noted on the S&P 500 last week is still intact but not confirmed. Until the September high at 1,474.5 is exceeded, stocks will most likely trade sideways.
Note that momentum is falling and confirms that the formation has stalled. But the chances of a breakout are still high as long as the index can hold within its current narrow-ranging top. A breakout target for the S&P 500 is at around 1,500, but we are in desperate need of enough confidence from buyers to push ahead....

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