Stock Market Update: Stocks Look to Higher Ground

by George Leong, B. Comm
Stocks continue to edge higher following the recent breakouts by the DOW and S&P 500, which are at their highest levels since June 2008. The bias continues to be bullish. There is some hesitancy on the charts, but stocks are powering higher. The DOW, NASDAQ, and S&P 500 are all up over five percent this year, with blue-chip stocks leading the pack.

It’s clear that the bias is bullish, but be careful. The light trading volume during this recent rally is a concern and points to a minor divergence between price and volume. During a rising market, you want to see higher trading volume in order to confirm the rally.

Technically, the stock charts continue to point to potentially more gains.

Investor sentiment has been extremely bullish.

Take a look at the new-high/new-low ratio (NHNL). The trend of the New York Stock Exchange NHNL had been edging higher, with 143 of the last 149 sessions to February 9 showing a bullish bias. The near-term trend is positive.

In the technology area, 102 of the last 107 sessions have been bullish.

As long as the investor sentiment continues to be bullish, I expect stocks will attract buying support.

I have presented my near-term technical views below.

NASDAQ

The near-term technical picture is bullish on strengthening Relative Strength (RS), so there could be more upside gains in the near term.

The index is above 2,700 and holding well above its chart top of 2,320.

The NASDAQ is holding above its 50-day moving average (MA) of 2,672 and 200-day MA of 2,408. The 50-day MA is above the 200-day MA and showing a bullish golden cross.

Watch out, as the index is overbought and we could see some hesitation on upward moves.

DOW

The near-term technical picture for the DOW is bullish on strengthening RS, so there could be additional gains in the near term. The DOW was on a nice eight-day winning streak before a small decline last Thursday halted the streak.

We feel that 12,000 could prove to be a battleground.

The index is above its 50-day MA of 11,578. The 50-day MA is holding above its 200-day MA of 10,833.

Watch, as the index is overbought.

S&P 500

In the broader market, the near-term technical signals for the S&P 500 are bullish on strengthening RS, so there could be more gains.

The month of February has not been kind to the S&P 500 in the majority of the past 12 years when the index fell in February on eight occasions.

So far it looks like February may be an up month.

The index is above its 50-day MA of 1,254 and 200-day MA of 1,157. The 50-day MA is above its 200-day MA.

Watch the index, as it is overbought.

RUSSELL 2000

The near-term picture for the Russell 2000 is bullish on strengthening RS, so watch for some more gains. The 800-point level is proving to be a key point.

The index is above its 50-day MA of 776 and the 200-day MA of 692.

SCI

Meanwhile, overseas in China, the Shanghai Composite Index (SCI) has edged higher following the one-week Lunar New Year break. The index is holding above 2,800 and is up 0.68% this year, which is subpar versus U.S. indices, but encouraging given the weak performance in 2010. We suspect traders are happy with the government’s efforts to battle inflation in spite of higher interest rates.

In all, you should ride the gains, but also make sure you have some risk-management tools in place, such as stop-losses or Put options.
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