Yesterday was “Double Day” as the S&P 500 finally achieved twice the level of its intraday low of 666.79 on March 6, 2009. The only interruption to yesterday’s broad advance occurred when Israel’s foreign minister warned Iran that if they sent two warships through the Suez Canal, Israel would consider it a provocation.
The market dipped, but then recovered on the Fed’s new optimism as they raised their growth outlook for 2011 and pledged to continue with its quantitative easing effort to support the economy. The notes of the late January meeting show a different tone in that some of the governors raised the possibility of scaling back the bond purchases in order to avoid future inflation.
Daily Stock Market NewsDow: +62 points at 12,288
S&P 500: +8 points at 1,336
Nasdaq: +21 points at 2,826
Volume and Breadth
NYSE: 928 million shares traded; advancers ahead 3-to-1
Nasdaq: 585 million shares traded; advancers ahead 1.9-to-1
Futures and Related ETFs
March Crude Oil: +67 cents at $84.99 per barrel; Energy Select Sector SPDR (NYSE: XLE) +$1 at $75.95
April Gold: +$6.30 at $1,380.40 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU) +$1.61 at $211.40
Monday’s pause gave way to a broad advance. Even though the volume is still lower than normal, breadth was on the side of the bulls, with a 3-to-1 advantage on the NYSE. And the Nasdaq blew into new high ground with barely any resistance.
And so the S&P 500 has doubled from its March 2009 low on a day that was as powerful as any this year. Though the gain for the index was just 0.63%, its ability to spring back from a new crisis shows the tenacity of buyers who will jump on any weakness as a buying opportunity. You just can’t ask for better than that.
Regarding yesterday’s discussion of the Moving Average Convergence/Divergence (MACD) indicator, there were several comments and questions regarding the Dow chart.
For starters, I referred to the light blue middle section of the MACD chart as a “line chart” and was properly corrected. It has lines to be sure, but its proper name is “histogram,” which is the visual representation of a distribution of data.� The histogram for MACD gives a visual measurement of the distance between the fast and slow moving averages.
The question most asked was, “What signals the action to buy or sell?” There is no precise answer to this except to say that when the moving average lines are far apart (histogram showing exceptionally high bars or low bars), followed by a relatively quick crossing of the fast line through the slow line, it is considered to be a strong signal.
Currently, since the slow and fast lines are running almost parallel and very close to each other, it is unlikely that MACD will give a strong signal.
There are other MACD signals that some chartists use, but I find them arcane and difficult to apply on a continuous basis. However, one that has stood the test of time — especially for identifying major market tops and bottoms — is “divergences from MACD versus the main market trend.” When MACD is charted separately and diverges from the main index or stock being studied, a signal is generated.�
For an example, consider this chart showing the market low of March 6, 2009, for the Dow.�
Note the uptrend in the MACD slow line, which is a divergence from the Dow’s channel downtrend. Also look at the strong crossover of the signal line (green arrow) at the bottom of the market on March 11. A double MACD buy signal was given a full five months before the market confirmed a new bull market in mid-July using conventional trend analysis.
Tomorrow we’ll bring ourselves up to date on our other internal and sentiment indicators. For today, the bulls are running strong.
For one strong stock that traders should consider taking profits in, see the Trade of the Day.
Today’s Trading LandscapeTo see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
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