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Wednesday, May 15, 2013

No Chart Resistance to Hinder Market’s Advance

Image representing Apple as depicted in CrunchBase
Image via CrunchBase
S&P 500 sliced through the top of the bullish resistance line of a well-defined bull channel

Financial, energy, materials and industrial stocks led the indices higher, and all 10 of the S&P 500 sectors closed in the black. Technology stocks closed higher but lagged other groups chiefly because of weakness in Apple (NASDAQ:AAPL), which fell 2.4%.
At Tuesday’s close, the Dow Jones Industrial Average was up 124 points to 15,215, the S&P 500 rose 17 points to 1,650, and the Nasdaq was up 24 points at 3,463. The NYSE traded 700 million shares and the Nasdaq crossed 409 million. On the Big Board, advancers led decliners by 1.8-to-1, and on the Nasdaq, advancers led by 2.4-to-1.

Trade of the Day Chart Key
The S&P 500 continued its winning ways Tuesday by slicing through the top of the bullish resistance line of the well-defined bull channel. This is a very positive development and results from the fact that there is almost no chart resistance to hinder its advance. Some technicians refer to this as “going exponential,” which really has little to do with mathematics. What they mean is that the index has accelerated beyond its normal rate of advance.
Japanese stocks have also had a dramatic rally, returning about 40% since mid-November, as illustrated by the iShares MSCI Japan Index (NYSE:EWJ). But the fund’s advance is not due to a strong economic recovery, but rather to the weakness of its currency, the yen.
The country’s Liberal Democratic Party won an election in December and introduced a program of aggressive economic stimulus targeted to increase its inflation rate to 2%. That program resulted in a crash for the yen, making it easier for Japanese companies to sell their products abroad. Thus, the bull market is a currency play between the U.S. dollar and the yen, and it could continue for the immediate future, according to currency specialists. But if you invest in Japan, I suggest that you buy a fund like EWJ so that the risk is fully diversified.
Conclusion: There are many ways to invest, but it is important to understand the reasons to go outside of this country. Japan’s economy has been in a depression for many years, and the extraordinary measures to turn it around are no guarantee of success. The advance in U.S. stocks has been “boring but bullish” as one technician put it — but you should never sell a boring market.
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