The Only Stocks Investors Should Be Buying Now

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Yesterday, the market rallied. Whether it was relief over a hurricane that caused less damage than expected or the consolidation ofGreece’s ailing banks is of little technical interest. What is important is the technical condition of the market and any resulting change in trend.

Despite yesterday’s rally, the overall trend is still down, but the indecision that accompanies a symmetrical triangle, at least for now, appears to have been resolved on the upside. Thus, the short-term trend may have changed.

As noted in yesterday’s Daily Market Outlook, symmetrical triangles are “continuation patterns,” and prices usually break in the direction of the overall trend. But this one didn’t, and I also noted, “Due to the currently unnatural source of trading (computer to computer) it could break on the upside and run the broad market back to the breakdown point at S&P 500 1,260.”

Yesterday’s tape action was just as notable for its lack of volume as the computerized frenzy of August was notable for its high volume and sky-high volatility. Just 911 million shares traded on the NYSE and 460 million on the Nasdaq, but advancers were ahead of decliners by 7-to-1 on the Big Board and 6.66-to-1 on the Nasdaq. And of more importance, 92% of the volume on the NYSE was up, and 98% on the Nasdaq was up.

SPX ChartTrade of the Day Chart Key

What this means is that if the S&P 500 closes today with a gain, the next target is the former 1,260 neckline breakdown. A higher close will also give the bulls a boost by strengthening their case that the low at 1,101 could be a bottom. But of most interest is that a rally to 1,260 is a 61.8% retracement of the fall from the July 22 high of 1,347 to the bottom support at 1,119 — an important Fibonacci number.

Finally, the strongest group yesterday was the financial sector. This group of banks, finance companies, insurers, etc., was the most oversold of any and due for a bounce. The temporary recovery of the banks looks like a reaction rally, and at this stage may have little long-term significance but could offer a good trading opportunity.

Conclusion: Even if the near-term trend changes to up, volume will have to increase substantially for the bulls to overcome the broad band of resistance that begins at the neckline break of 1,260. Only very high-quality dividend-bearing stocks should be purchased by investors. Stocks with poor fundamentals that rally from deeply oversold conditions should be sold.

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.

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Article printed from InvestorPlace Media, https://investorplace.com/2011/08/daily-stock-market-news-the-only-stocks-investors-should-be-buying-now/.

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