Political, economic and foreign crosscurrents resulted in a lower opening yesterday. But much like Monday, buyers arrived in enough strength to take back a significant portion of the early losses. Greece’s debt-reduction talks with its creditors were the main reason for the early weakness, but buyers snapped up some bargains in the technology sector.
At the close, the Dow Jones Industrial Average was off 33 points to 12,675, the S&P 500 fell just over 1 point to 1,315, and the Nasdaq rose 2 points to 2,787. The NYSE traded 741 million shares and the Nasdaq crossed 443 million. Breadth was slightly positive on both exchanges with advancers ahead of decliners by 1.2-to-1 on the Big Board and 1.5-to-1 on the Nasdaq.
After the closing bell, Apple (NASDAQ:AAPL) blew the cover off the ball by announcing that they had sold 37 million iPhones in the December quarter while analysts had predicted that 30 million would be sold. The enormous sales gains resulted in their “best quarter ever,” according to Apple’s CEO.
Rumors of a big quarter for Apple have been circulating for weeks, and with the announcement, the Nasdaq could open higher and then retreat since the good news is now public, or the index could fade on the opening. Either way the Nasdaq has had a spectacular 11% run from its December low, and like the broad market, is due for a rest at the bearish resistance line at about 2,800.
Monday’s high touched the line and then quickly reversed, which created a sell signal on the stochastic. The first support on a pullback would be at the October high of 2,753, shown in green on the chart.
Even the small-cap Russell 2000 index is showing exhaustion. Following the breakout above its 200-day moving average most small caps would make a run to new highs. Instead the index has paused and yesterday traded in a broad range but failed to break Monday’s high as sellers arrived just before the close. Its stochastic is very overbought and close to a sell signal. However, the index could punch into the heart of the broad resistance zone between 760 and 845 before reversing.
Conclusion: The broad market has reached significant resistance, and every internal measure encourages us to expect a pullback. Nevertheless, the longer-term momentum has shifted to the bulls, and so the chances of a broad breakout following a period of consolidation have improved. Thus pullbacks should be used as buying opportunities. The first area of support for the S&P 500 is 1,285 to 1,292, for the Nasdaq, it is 2,753, and for the Dow, the support is at 12,300.