Weekend event risk and minor headlines from every corner failed to stop the markets gains.
North Korea is old news. Without an unexpected military attack against NK or by NK against somebody else, the hermit kingdom has lost its influence on the market. The last missile launch tanked the S&P futures by 7 points but the index itself only declined 2 points at the open and then rallied to a new high.
Without North Korea and the normal September political events surrounding the budget and debt ceiling, there is a shortage of negative catalysts in our future. The Fed announcement and press conference on Wednesday is the only speed bump on the calendar and given the impact of the hurricanes and the drop in the economic numbers, the Fed may be on hold as well, making December a potentially volatile month.
All of the market internals point to a continued rally. The A/D line, new highs, oscillating indicators, etc are all positive. The cumulative A/D line is breaking out to a new high, which shows this is a broad based rally.
The S&P saw a significant short squeeze on Monday with a 27-point gain. That put it just below the critical resistance at 2,500 and that is where it traded the rest of the week. That level plus the uptrend resistance was a roadblock. This is going to be the market key for all of next week. If the S&P surges over 2,500 the broader market should explode higher. If the 2,500 level holds and we see some retracement, it would be a buyable dip. I simply do not see a material decline unless some headline appears that nobody is expecting.
The Dow surged for a 407-point gain for the week. Multiple resistance levels were broken and the index closed at a new high. The uptrend resistance currently impeding the S&P is about 100 points above Friday's close. We could see some profit taking on the Dow stocks but any dip should be bought. The next challenge for the Dow will be around 22,500 and another big round number.
The Nasdaq rallied to resistance at 6,460 on Tuesday and stalled there for the rest of the week. The big cap techs were mixed thanks to Apple's decline that began on Tuesday. That contaminated the rest of the pack and they struggled to post gains. Nvidia exploded higher on Friday and that helped the index but not enough break through resistance despite a 19-point gain. The index closed 12 points below that critical level.
The big cap techs are searching for buyers. Somebody is taking profits and I suspect it is portfolio managers restructuring their portfolios as they do every September.
If the S&P breaks through 2,500, the Nasdaq should follow with a breakout over 6,460.
The Semiconductor Index made a new 17 year high on Friday and chips lead the Nasdaq. As long as those gains continue, the Nasdaq will rally.
The small cap Russell 2000 is following the big caps higher. The resistance at 1,427 was broken on Friday but it was not convincing. We need the Russell to breakout over 1,450 to really kick the market into high gear.
The only material hurdle on the economic calendar is the fed events on Wednesday. While I do not expect a problem, it is the events you do not expect that cause the most trouble.
Typically, the Monday after an option expiration is flat as traders settle their option trades. Normally the Tuesday before a Fed announcement is positive but given the risk they could announce some tapering of their QE purchases, we do not know if the trend will repeat.
The market internals suggest the rally will continue. That does not mean run out and buy every stock making a new high. We still need to look for special situations and minor retracements whenever possible.
Enter passively, exit aggressively!
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