Yesterday’s triple-digit advance by the Dow Jones Industrial Average was again the result of a focus onEurope. And whether here or there, the story is that you just can’t fight central banks when they decide to flood their systems with U.S. dollars.
On this side of the pond, weekly jobless claims rose above expectations and regional manufacturing missed the mark (Empire State Manufacturing Survey for September fell to -8.8 instead of -4). And there was a flurry of other reports, but they had little impact on a market that is focused onGreece,Italyand the ECB’s every effort to save them from defaulting on their debt.
For the fourth consecutive day stocks moved higher, completing a run of 4.3% from Monday’s close, and a Collins-Bollinger Reversal (CBR) buy signal, to Thursday’s close. Traders who took leveraged ETF positions on Monday’s buy signal should consider cashing in. And it would be prudent for traders to close all other long positions this morning.
It is possible that stocks could make a further run through the neckline at Nasdaq 2,602 and the 50-day moving average at 2,612. But an overbought MACD, and the vagaries of a triple-witching day argue against holding long positions in a bear market within an incomplete bear flag formation. Finally, the bounce from the August low to last night’s close is a 50% retracement of the fall from the July 7 high to the Aug. 9 low — a Fibonacci number.
After breaking from major resistance at a triple-top and its 200-day moving average, the U.S. dollar pulled back closing the first of two open breakaway gaps. The dramatic breakout confirms a double-bottom for the buck, but there is no guarantee of an immediate follow through since patterns of this type often take weeks or months to develop.
However, in addition to the breakout, the 20-day moving average (green line) crossed up and through the 50-day (blue line), triggering a trading buy. The implications of a stronger dollar for theU.S.markets cannot be dismissed — it is another bearish signal. And it tells us thatEurope’s economic problems are far from being resolved.
Conclusion: U.S. indices have penetrated up into the bottom of significant resistance zones. Prudent traders should cover all long positions, and investors should examine portfolios for stocks with weak technical and fundamental characteristics and sell them. Traders could take new short positions now or wait for a clear technical signal, such as a daily reversal, before entering new bearish strategies.Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
- See Serge Berger’s Daily Market Outlook: Sell Into the Long-in-the-Tooth Rally
- See Sam Collins’ Trade of the Day: Top Gold Stock to Buy on a Pullback
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