STOCK REBOUND CONTINUES -- PRICES RECOVER SOME LOSSES SUFFERED OVER THE LAST THREE MONTHS BUT REMAIN IN DOWNTRENDS -- STOCK INDEXES APPROACH POTENTIAL OVERHEAD RESISTANCE BARRIERS
U.S. STOCK INDEXES CONTINUE JANUARY REBOUND ... Stock prices are trending higher again this morning which continues the rebound that started right after Christmas. Today's three price charts reflect that short-term improvement, while keeping them in a longer-range perspective. The main point of the charts is that all three U.S. stock indexes remain in downtrends as measured by falling moving averages and overhead chart resistance formed during the fourth quarter of last year. The big test will be whether or not prices are able to overcome some of those overhead barriers.
STOCK INDEXES APPROACH OVERHEAD RESISTANCE BARRIERS... Chart 1, for example, shows the Dow Industrials moving above its 20-day average (green line). But it remains well below more important 50- and 200-day averages (blue and red lines). The Dow is also nearing potential overhead resistance near its early December intra-day low (23,900) and its late October low (24,100)., Chart 2 puts those two overhead resistance barriers for the S&P 500 at 2583 and 2603. For the Nasdaq Composite, those two numbers translate to 6878 and 6922. Trading volume has been relatively light which detracts from those recent price gains.
OTHER SIGNS OF SHORT-TERM IMPROVEMENT... Other short-term positive signs include rebounds in economically-sensitive sectors like consumer discretionary stocks and transports, while defensive stock sectors like consumer staples and utilities have lagged behind. Small caps have are also doing a little better than large caps over the past week. Bond yields are also bouncing which has caused profit-taking in Treasury bonds. But corporate bond prices are rebounding, especially riskier high-yield bonds. That's usually a sign of renewed confidence. A pullback in the dollar is also helping lift crude oil and some other commodity prices. All of those improving trends, however, are short-term in nature and not enough to reverse technical damage done to the various markets since the start of the fourth quarter. We will, however, be watching those short-term trends very carefully in the days ahead to see if they can turn into something more lasting. Longer-range technical trends aren't very encouraging. But we'll be looking for any signs of those negative trends changing in the new year. One of the first signs will be how stocks do during the month of January.
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Chart 1
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Chart 2
