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Nasdaq Rally a Good Sign, But …

By: Sam Collins
Posted: 2/28/2011 10:00:00 PM
Referenced Stocks: JNJ

Yesterday was a big day for blue chips as Johnson & Johnson (NYSE: JNJ ), Verizon Communication (NYSE: VZ ) and Hewlett-Packard (NYSE: HPQ ) led the Dow to a gain. But the other averages slugged it out for the entire day, and only a late rally overcame earlier deficits and they closed barely ahead. Nevertheless, the Dow ended the month with a gain of 2.81%, the Nasdaq rose 3.04%, and the S&P 500 rose 3.2%.

Daily Stock Market News

Dow: +96 points at 12,226
S&P 500: +7 points at 1,327
Nasdaq: +1 point at 2,782

Volume and Breadth

NYSE: 1.3 billion shares traded; advancers ahead 2.3-to-1
Nasdaq: 638 million shares traded; advancers/decliners even

Futures and Related ETFs

April Crude Oil: -91 cents at $96.97 per barrel; Energy Select Sector SPDR (NYSE: XLE ) +60 cents at $78.54

April Gold: +60 cents at $1,409.90 per ounce; PHLX Gold/Silver Sector Index (NASDAQ: XAU ) +3.11 points at 215.32

What the Markets Are Saying

Unless you are a fan of QE2, yesterday's tape action was as strange as I've seen in a while. There was decent volume on the NYSE on a day that was up, which is good. But the Dow was the only index to benefit from it.

A comment by William Dudley of the New York Fed may explain the tape action when he said, "although rising commodity prices argue for increased inflation vigilance, the economy is unlikely to mount strong enough growth to change the path of monetary policy over coming months." (Wink, wink.)

For those who missed the "wink," what Mr. Dudley was saying was that there is huge inflation in food and energy, which the Fed refuses to recognize because they are determined to go ahead with QE2. And my guess is that yesterday was a day to buy blue chips since the biggest and best have been lagging a bit lately.

Regardless of the reason for yesterday's buying, from a technical point of view the Dow exceeded the resistance at 12,221 by about 6 points, thus negating last week's short-term sell signal, which places it at a neutral stance. And the S&P 500 also exceeded its resistance by closing at 1,327, which neutralizes its sell signal.

But a strong point for the bulls is the rally by the Nasdaq. The leading index of the last six months has again hammered out enough of a gain to close above January's high-water mark. However, in order for it to regain its status as "bullish," it must punch through the resistance at 2,808 to 2,824, which is the gap that it opened last Tuesday. The ability of the major indices to reverse from their 50-day moving averages and punch above the 20-day averages is a plus, too, and strong evidence that the uptrend will most likely resume.

For one top stock to buy 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 .