Market Breaks to New Highs – Can It Hold?

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Successful debt auctions from Germany and Portugal at prices above expectations eased concerns over the near-term economic situation in Europe. European stocks liked the news, with the Stoxx Europe 600 closing up 1.4%. And on our side of the pond, U.S. stocks broke to new highs and their best levels in over two years.

Banks in Europe and the United States were big winners. JPMorgan Chase & Co. (NYSE: JPM ) gained 2.6% and Bank of America (NYSE: BAC ) rose 2%, both on upgrades by Wells Fargo & Company (NYSE: WFC ).

Another winner was ITT Corporation (NYSE: ITT ), which jumped 17% following an announcement that it will split into three publicly traded companies.

In economic news, the price of imported goods rose 1.1% in December. Some analysts cited the number as proof that inflation, especially in the food and energy sectors, could become a problem. The Fed's Beige Book showed a modest increase in manufacturing, retail and non-financial services. But financials and real estate remain weak.

Treasurys fell yesterday, pushing the yield on the benchmark 10-year note to 3.353%. The euro rose for the third consecutive day to $1.3129 from $1.2973 on Tuesday.

At yesterday's close, the Dow Jones Industrial Average rose 84 points to 11,755, the S&P 500 gained 11 points at 1,286, and the Nasdaq was up 21 points to 2,737. The NYSE traded 963 million shares with advancers ahead of decliners by 2.6-to-1. On the Nasdaq, advancers were ahead by just over 2-to-1 on volume of 455 million shares.

Crude oil for delivery in February rose 75 cents to $91.86 a barrel, and the Energy Select Sector SPDR (NYSE: XLE ) gained 95 cents, closing at $70.09. February gold rose $1.50 to $1,385.80, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU ) fell 0.22 points to 216.15.

What the Markets Are Saying

Each index made new closing highs again yesterday, including the barometer that I like most, the broad-based NYSE Composite. The S&P 500 had the biggest percentage gain, up 0.9%, compared to 0.75% for the Nasdaq.

But the Nasdaq will no doubt receive most of the public's attention because of its superb performance following a breakout in late October, and the dynamic run of the technology sector. Yesterday marked another high for the index, which is now flirting with the highest level in a 10-year span, the high made in October 2007, at 2,861. Thanks to Michael Ashbaugh for pointing out that the index is now just 5% away from that mark, which represents a new intermediate-term target.

But even with dynamic near-term performance, stocks in general, and especially those on the Nasdaq, have had a poor 10-year record. The return of the index in the past decade is -5.9%. And that doesn't even "account for the fact that it peaked 10 months earlier - during March 2000 at 5,132″ (Ashbaugh).

Perhaps the Nasdaq and the market have a long way to go before they reach the final top. I hope so, since for many investors, it's been a rough 10 years. This market continues to "climb the wall of worry," which means that the intermediate top is still ahead of us. We'll continue to hang onto our longs, which have some great gains, but we are hesitant at this level to enter many new positions.

Despite yesterday's breakout, volume was very light and our internal indicators are again close to two-year highs. We've had no clear sell signal, which gives us time to continue to prepare for one by reviewing various exit signals. So far, we've reviewed the 20% rule and the one-day and key reversal day signals. Tomorrow, I'll cover another valuable exit technique.

For one tech stock to sell now, see the Trade of the Day .

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 .

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

Referenced Stocks: ITT

Sam Collins

Sam Collins

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