Sam Collins

New Highs Not Likely This Year

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Energy stocks gained yesterday following better-than-expected earnings from BP PLC (BP). And IBM (IBM) led the techs and the Dow Jones Industrial Average (DJI) after announcing a $5 billion stock repurchase plan. But aside from that there was little to move the markets, and despite the overweighting of tech stocks in the Nasdaq (NASD), the "junior index" fell 1.2%.

Consumer discretionary stocks took a beating following a disappointing Consumer Confidence Index reading. The group fell 1.7%, with JCPenney (JCP) falling 4.13% and Macy's (M) down 1.35%.

And throughout the day, the long-term Treasury futures were strong as investors sought safety instead of risk. The 10-year note gained 28/32 to yield 3.454% as the U.S. dollar gained ground for the third day in a row.

At the close, the Dow was up 14 points to 9,882, the S&P 500 (SPX) fell 4 points to 1,063, and the Nasdaq lost 26 points to 2,116. 

The Big Board traded 1.4 billion shares for the second consecutive day, and decliners were ahead of advancers by almost 2-to-1. The Nasdaq traded 786 million shares and it, too, had decliners ahead by 2-to-1.

December crude oil rose 87 cents to $79.55, and the Energy Select Sector SPDR (XLE) gained 51 cents to $57.85. 

December gold fell $7.40, closing at $1,035.40, as a stronger dollar put new pressure on gold. The PHLX Gold/Silver Index (XAU) fell $2.24 to $163.23.

What the Markets Are Saying

After seven months of one of the strongest rallies in history, the stock market is showing signs of aging. Yesterday we looked at the weakening Relative Strength Index (RSI) and momentum indicators, which show that the fuel needed to make new highs is becoming depleted. Today we note some extreme weakness in one of the key indices, the Nasdaq.

From March to Oct. 23, the Nasdaq has run from 1,265 to 2,190 for a 73% gain. But in the past four weeks the Nasdaq has recorded one major reversal (on Sept. 23) and two minor reversals (Oct. 21 and Oct. 23).  

And yesterday, despite major news from IBM, the tech-heavy index fell through its intermediate support line as well as the long-term bullish support lines connecting the March 9, July 8 and Oct. 2 lows. 

Despite the ominous overtones of the breaking of Nasdaq's important bullish support line, there is still little evidence that a major sell-off is in the wings since there are at least two major support zones that exist below the current price.

So, like yesterday, I support the view that the advance will shift gears, and instead of recording a new high every month, the trends will tend to flatten.

Support will most likely hold at Dow 9,380, S&P 1,020 and Nasdaq 1,930 to 2,015. But as we head into the heart of the fourth quarter, I wouldn't look for any more new highs this year.