What We Can Realistically Expect From the Market’s Latest Buy Signal

Better-than-expected economic data helped stocks close a light-volume, pre-holiday session with modest gains yesterday. Initial jobs claims decreased, the Conference Board�s index of leading economic indicators reported the seventh straight monthly advance, and the University of Michigan consumer sentiment index showed that consumer confidence was improving.

European markets were higher, and our markets followed with the Dow Jones Industrial Average up 62 points to 12,170, up 0.51%; the S&P 500 rose 10 points to 1,254, up 0.83%; and the Nasdaq gained 21 points, closing at 2,599, up 0.83%. The NYSE traded 773 million shares and the Nasdaq crossed 387 million. Advancers led decliners on both exchanges by just under 3-to-1.

The S&P 500 remains the focus of most technicians, and despite yesterday�s 10-point gain, has yet to successfully attack its intermediate bearish resistance line or its 200-day moving average at 1,259. Therefore, it is still in a sideways consolidation.

Resistance lines are seldom broken on low-volume, pre-holiday sessions and most likely won�t break before January despite the buy signal from MACD.

However, if the S&P 500 does break these immediate barriers, it will enter a target zone between 1,259 and 1,325, and that would give long traders a quick profit. (In the past week, my colleague Joe Burns closed a BIDU trade for a 158% profit, a FSLR trade for 143.75%, and a GOOG trade for 80%. Get in on his new trades now.)

But don�t expect a major breakout through the May high. That should take much more work and many more months to accomplish.

Until May, the Nasdaq was the leader of a market that appeared to be charging ahead. But since then, it has badly faltered, has dragged the broad indices lower, and is still in a flat trend with a bearish bias. The 2,600 line is its first barrier, and it closed just below it yesterday. But for it to take on a more positive tone, it also needs to break above its 50-day moving average at 2,617 and finally pierce its 200-day moving average at 2,662.

But there may be hope for the Nasdaq in that an anchor to its progress, the financial group, is showing new life as evidenced by the Financial Select Sector SPDR (NYSE:XLF).

Yesterday�s drive and close above its 50-day moving average and a new MACD buy signal are in response to better economic numbers. With over 10% of the Nasdaq�s make-up in financials, a full breakout of the sector could, with time, propel the index through the most stubborn barriers.