Get Me Joe Friday

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We start the year with a call to Sgt. Joe Friday from the Dragnet series. When there is a lot of talk and little actually being said it is time for a “Just the facts ma’am” moment. Good old Joe actually said “all we want are the facts” when people went off the rails. So, the first missive from me this year is going to be short and sweet and will fall into the “all we want are the facts” camp.

73% of the stocks in the S&P 500 are in either basing or advancing stages. 72% of small cap stocks are in those two favorable categories. With this being the outlook the long term technical trend of the market is favorable.  To add to that strength the NYSE daily advance-decline line hit a new 52 week high last week.

The markets saw a positive divergence on the last day of trading of 2012. All the major averages gave way, except the Russell 2000, during the ongoing fiscal cliff nonsense. When the averages held support it was a sign that the market was setting up for an advance. The advance showed strength when the following levels on the S&P 500, Dow, NASDAQ and Russell 2000 were surpassed; 1450/13,360/3063/854. 

Near term support for the major averages is 1455/13,665/3089/870. Resistance levels are the following; 1476/13,365/3200 and the Russell has already broken out. Based on the strength of the recent advance, and the fact that more than 70% of the individual stocks in the market are in good shape, pullbacks should be orderly and controlled.

I will not add to the talking heads and bloggers that predicted doom and gloom regarding the fiscal cliff. They are likely the same people that predicted the break-up of the European Union, the disappearance of Greece, the end of the world on the US debt downgrade, some sort of Hindenburg omen thing way back when and countless other “facts” that should drive us into the stone age.

The market is the ultimate leading economic indicator. Over 70% of the individual stocks that make up the broader markets are in sound shape.  That will give us enough to focus on. I am sure if you are interested you can find a lot being written about the debt ceiling or why the fiscal cliff should have derailed things or some other such reason why the market should have done this or will do that. But, as we sit, the weight of the evidence from a technical perspective is that the long term trend of the market is favorable and pullbacks should remain controlled and orderly. 

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About Thomas J Smith CFA