Apple (Nasdaq:AAPL) paid a visit to its 50-day moving average Tuesday, and just when it looked like the bottom would fall out, buyers came into the market and lifted Apple -- and the broad market -- off its lows. The day's action showed that bulls remain in control for now.
The bear argument goes something like this: Weakness in the transports can't be a good thing for the market; third quarter earnings season will be a disappointment and it's only a matter of time before Apple takes out its 50-day simple moving average with conviction.
Of course, they're all legitimate concerns, but there are plenty of other good things going on in the market right now where a glass-half-full perspective is warranted. Below are five reasons to expect a solid end of the year for the stock market:
Market Leaders Acting Well: Bullish charts in my growth screens outnumber bearish ones by a wide margin. Every single name in the Ultimate Growth Stocks model portfolio continues to hold above support, showing little in the way of sell signals. There are plenty of broken stock charts out there, but not when it comes to the real market leaders. If the market was really in trouble here, leading growth stocks would be flashing sell signals. They're not.
Weak U.S. Dollar: Not everyone likes a weak greenback but the stock market sure does. The good news for bulls is that it doesn't look like the U.S. dollar is ready to start a meaningful uptrend anytime soon. Fed policy has a lot to do with it, and the Fed's position isn't likely to change anytime soon. The dollar remains in a technical downtrend, showing poor relative price strength. It's stuck underneath its 200-day moving average at 80.71 and its 50-day moving average at 81.36. Both price levels could be resistance levels.
Meanwhile, gold tends to rise when the dollar is weak and recent price and volume trends in the SPDR Gold Trust (NYSE:GLD) point to a breakout over its February 29 intraday of $174 isn't out of the question. The fund remains under accumulation and continues to show relative price strength, holding gains nicely. On a weekly chart, GLD's 10-week moving average is $165 -- a key support level at this point.
Weak Bond Market: Bonds have been rallying lately, but the chart of the iShares Barclays 20+ Year Treasury Bond Fund (NYSE:TLT) continues to look weak. Its 50-day moving turned out to be a resistance level in early September and it is facing resistance at the line again. With interest rates as low as they are, the case for owning bonds isn't a strong one at the moment. As a result, money could continue to flow into stocks.
Limited Distribution in the Major Averages: Distribution is synonymous with institutional selling. When big investors start liquidating positions, it's a good time for individual investors to start raising cash. Headed into Wednesday, the S&P 500 showed four higher-volume declines since September 20. Repeated higher-volume declines can stop a market rally in tracks. It can also be a precursor to more selling down the line. But two recent declines in the S&P 500 didn't feel like institutional selling at all. On Sept. 20, the S&P fell in higher volume, but it finished near its session high after early weakness and lost less than 1 point. The very next day, the S&P reversed after early strength but once again lost less than 1 point. Volume was skewed a bit by options expiration.
Institutional selling in the Nasdaq Composite has been much less prominent. The tech index shows just two higher-volume declines in recent weeks.
Bullish Charts in the Financial Sector: Inside the Dow, financial stocks like Citigroup (NYSE:C) and J.P. Morgan Chase (NYSE:JPM) continue to set up for possible upside breakouts. Citigroup is sitting just underneath a swing point (buying area) of $35.25, its September 14 intraday high. J.P. Morgan Chase is flirting with possible breakout over $42.09. On Tuesday, Credit Suisse raised its rating on the sector to outperform, saying that loan growth in the third quarter could surprise to the upside. Overall, profit at S&P 500 firms is expected to fall 2.7% from a year ago but financials should be a bright spot with earnings up nearly 10% from a year ago.
In sum, even though there's reason to be optimistic about a solid finish to the year, it's not out of the question that major averages could pay a visit to their respective 50-day simple moving averages -- a likely support level. The Nasdaq closed Tuesday at 3120, about 60 points above its 50-day line and the S&P 500 finished at 1,445, about 30 points above its 50-day line.
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