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Monday, April 1, 2013

The First Sign of Trouble in Paradise for Stocks?

While the market made new highs, some technicians are worried about a Dow Theory non-confirmation

New York, Apr.1, hot stocks .- The final day of the first quarter of 2013 ended with a new closing high for the S&P 500. The old high of 1,565.15 had stubbornly held since October 9, 2007. The new record was achieved despite continuing European economic and political problems and disappointing economic numbers in the United States.
Fed assurances of a continuation of easy money overcame March’s soft Purchasing Managers’ Index and weak mutual fund purchases for the month. And even a call for new elections in Italy and a chaotic banking failure in Cyprus failed to dissuade buyers of U.S. stocks.
At Thursday’s close, the Dow Jones Industrial Average was up 52 points to 14,579 (a new closing high), the S&P 500 rose 6 points to 1,569, and the Nasdaq was up 11 points at 3,268. The NYSE traded 886 million shares and the Nasdaq crossed 438 million. Advancers outpaced decliners on the Big Board by 1.7-to-1, and on the Nasdaq by 1.3-to-1.
The top S&P sectors for the year have been health care (+15%), consumer staples (+13%), consumer discretionary (+11%), financials (+10%), and energy (+9%). Even the normally stodgy Dow Jones Utility Average hit its highest level since July 2008. This outstanding performance demonstrates the broad-based depth of the quarter’s advance.

It was a heavy lift for the S&P 500, but it finally managed to slug its way through the old closing high made in October 2007. Perhaps this week we will see enough upward momentum for the index to punch into new all-time high ground above 1,576.09.
In addition to the S&P 500, the Nasdaq, which has been lagging, also poked into new 12-year high ground. Note that the Nasdaq’s MACD is very close to a new buy signal.
Near-term support is provided by a band of trading from 3,213 to 3,260, along with support from the 20-day moving average at 3,236 and the 50-day at 3,190.
The industrials have been making new highs on a regular basis, and Thursday’s action did not disappoint. Future support has reasonable depth, first from 14,382 to 14,550, and then 13,860 to 14,020 — and a lot more below those zones.
The Dow Jones Transportation Average, after charging ahead and leading all other indices for five months, failed to hit a new high last week. With the Dow industrials at a new high, this failure is called a Dow divergence, or non-confirmation. And it could prove to be the first hint of trouble in paradise.
The leading proponent of Dow Theory, Richard Russell, warned in The Wall Street Journal, “It would not be a good omen if the transports were to break down.”
The index started in the 1800s, comprised mostly of railroads. Today, however, it represents the performance of trucking, airlines, and delivery companies such as FedEx (NYSE:FDX) and UPS(NYSE:UPS).
Conclusion: The first quarter of 2013 ended with gains in a basket of equities close to 11%. The Dow Jones Transportation Average led the way with a gain of 18% — an extraordinary achievement. In fact, so extraordinary that I wouldn’t get my knickers in a bunch over it missing a new high by a fraction.
The market is due for a rest, perhaps even a correction of 10%, but momentum is still very much on the side of the bulls. Thus, let’s just enjoy success while keeping an eye out for potential trouble. Those who have ignored the advance and succumbed to counting bricks in the “wall of worry” will continue to wail. Let them, and stay long stocks until there is a good reason to bail out. Technically all trends are up. ...
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