Resistance lines are seldom broken on low-volume, pre-holiday sessions!
Realistic Expectations from the Market’s Latest Buy Signal!
Better-than-expected economic data helped stocks close a light-volume, pre-holiday session with encouraging economic data once again fueling the bullish fire. After Thursday’s economic reports -- initial jobs claims decreased, the Conference Board’s index of leading economic indicators reported the seventh straight monthly advance, and the University of Michigan consumer sentiment index showed that consumer confidence was improving – Friday provided more encouraging data -- specifically, a well-received report on durable goods and in-line housing stats got the ball rolling, helping to overshadow a smaller-than-expected rise in both personal income and consumer spending. Meanwhile, an unusually productive Congress actually stoked the bulls' flames, with Wall Street applauding a two-month payroll tax-cut extension.
Against this jolly backdrop, the Dow Jones Industrial Average (DJIA) extended its lead as the session progressed, while the broader S&P 500 Index (SPX) muscled into positive territory for the year. On the flip side, the CBOE Market Volatility Index (VIX - 20.73) shed 2%, with the market's "fear barometer" breaching the key 24 level resistance lines for the first Friday since July.
The Dow Jones Industrial Average (DJIA – 12,294.00) ended near a session high, advancing 124.4 points, or 1%, after stopping just shy of the 12,300 level. For the week, the Dow soared 3.6% to end at its loftiest level since late July.
Similarly, the S&P 500 Index (SPX – 1,265.33) settled within a hair's breadth of its intraday acme, gaining 11.3 points, or 0.9%, to conquer its 200-day moving average resistance line. As alluded to earlier, the broad-market barometer -- like its peers -- also edged into the black for the year, after rallying 3.7% for the week. Finally, the Nasdaq Composite (COMP – 2,618.64) gained 19.2 points, or 0.7%, to reclaim its perch atop the 2,600 level resistance lines. For the week, the tech-rich index muscled 2.5% higher.
Friday's Closing Summary
Friday's Market Volume
The S&P 500 has remained the focus of most technicians, as resistance lines are seldom broken on low-volume, pre-holiday sessions and after Thursday’s session it appeared most likely that it wouldn’t break before January despite the buy signal from MACD.
However, true to market contrariness, the S&P 500, on Friday, did break through the immediate barriers with its attack on the intermediate bearish resistance lines of the 200-day moving average. It has now entered the target zone between 1,259 and 1,325, and that should give long traders some quick profit.
However, don’t expect a major breakout similar to the May high as this, realistically; the resistance lines should take much more work and many more months to overcome.
Until May, the Nasdaq was the leader of a market that appeared to be charging ahead. But since then, it has badly faltered, has dragged the broad indices lower, and was still in a flat trend with a bearish bias on Thursday. The 2,600 line was its first barrier, and it closed just below it Thursday.
Once again, it took on a more positive tone Friday, breaking above its 50-day moving average at 2,617. However, to finally pierce its resistance lines of the 200-day moving average at 2,662 will require much more work.
But there may be hope for the Nasdaq in that an anchor to its progress, the financial group, is showing new life as evidenced by the Financial Select Sector SPDR (NYSE: XLF).
Friday’s drive and close above its 50-day moving average and a new MACD buy signal are in response to better economic numbers. With over 10% of the Nasdaq’s make-up in financials, a full breakout of the sector could, with time, propel the index through the most stubborn barriers.