Market Faces Staunch Resistance

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On Thursday, better jobs data and strong overseas markets initially drove stocks higher. But late in the afternoon stocks faded, and the indices closed with only marginal gains.

Japan's Nikkei was up 0.8%, Hong Kong's Hang Seng gained 0.4%, Germany's DAX advanced 0.9%, and France's CAC was up 1.2%. Britain's FTSE closed with a gain of 1.2%. The Bank of England kept rates unchanged, and that had little impact on U.S. trading. Our gains were likely the result of further stability in the banks of Ireland and Spain.

Initial jobless claims for the week ended Sept. 4 totaled 451,000, down 27,000. But continuing claims came in at 4.48 million versus the 4.45 million that was expected.

Financial stocks drove the indices lower in the afternoon following an announcement by Germany that Deutsche Bank AG (NYSE: DB ) may issue stock to raise capital. In short order the S&P 500 took back half of its gains. But financial stocks held their own, closing higher by 1.2%.

Goldman Sachs Group Inc. (NYSE: GS ) rose 1.6% after agreeing to a fine of 17.5 million pounds for violations of the U.K.'s Financial Services Authority. Goldman was accused of failing to make disclosures about trader Fabrice Tourre.

Treasuries were lower, and an auction of 30-year bonds had mediocre results. The euro closed at $1.2688 versus the U.S. dollar, down from $1.2731 on Wednesday.

At the close, the Dow Jones Industrial Average rose 28 points to 10,415, the S&P 500 gained 5 points to 1,104, and the Nasdaq gained 7 points to 2,236.

The NYSE traded just 839 million shares with advancers ahead by 1.7-to-1. On the Nasdaq, decliners were slightly ahead on volume of 486 million shares.

Crude oil for October delivery fell 42 cents to $74.25 a barrel as worries over higher-than-normal supplies continued. The Energy Select Sector SPDR (NYSE: XLE ) rose 11 cents to $53.96.

December gold fell $6.60 to $1,250.90 an ounce, as investors gained confidence in the state of the world's economic recovery. The PHLX Gold/Silver Sector Index (NASDAQ: XAU ) fell 3.33 points to 183.49.

What the Markets Are Saying

It is difficult to draw too many conclusions during a week shortened by two holidays, first Labor Day and then Rosh Hashanah. Volume for the week has been paltry and, as expected, volatility has climbed.

Yesterday, the S&P 500 got as high as 1,110.27, which is about 5 points lower than its 200-day moving average . The Dow Industrials had an intraday penetration of the 200-day moving average at 10,451.55 with an intraday high of 10,476.62, but it quickly retreated to close about 62 points lower than the moving average. The 200-day moving average is still the preeminent resistance to a further advance. However, a slight penetration of the line, as we saw in both June and August, does not mean that stocks have changed course. There must be a follow-through that did not occur with the prior moves above it. So a close higher than 1,131 is the least requirement for a breakout.

But both the S&P 500 and the NYSE Composite did close above a trendline connecting the April to August highs. This is a mildly bullish sign and worth keeping in mind. Further advances by either index, along with more volume, could lead to an attack on the 200-day moving averages.

Yesterday, I noted that the Investors Intelligence showed an increase in bulls for the Investment Advisors, and that is mildly bearish for the market. Interestingly, though, the AAII figures also show an increase this week in bullish sentiment. The bulls rose to 43.87% from 30.89%, and the bears dropped to 31.61% from 42.21%. Thirteen points is a fairly large move higher in bullish sentiment in just one week. Combined, these readings are not good news for buyers of the current rally.

Conclusion: The 200-day moving average for the S&P 500, which is now at 1,115, is a major resistance number. A break above it would likely lead to a challenge of the double-tops at 1,131 and 1,130, which is another major area of resistance. Major resistance lines are formed by blocks of sellers, and thus, they usually block advances.

With sentiment now telling us that the bulls are likely to fail, investors should prepare to sell any lagging positions and traders should review their list of likely shorts and other bearish strategies.

Don't be a hero and try to outguess the market since the odds are greatly against that sort of high-risk guessing.

For an ETF that could score you a quick profit, see my Trade of the Day .

Today's Trading Landscape

Earnings to be reported before the opening include: Brady and lululemon athletica.

Economic report due: wholesale trade.

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

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

This article appears in: Investing , Stocks
Referenced Symbols: DB

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Sam Collins

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