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Dont Fight the Tape or the Fed

Friday may not have been one of the strongest days for the bulls, but most indices chalked up minor gains and new closing highs for the year. The reason for the drift higher was a late-day rally resulting from better-than-expected earnings from JPMorgan Chase (JPM ) and Wells Fargo (WFC ), and expectations of a continuation of Fed easing.

Fed Chairman Ben Bernanke was a source of optimism, saying highly accommodative Fed policy would continue for the foreseeable future. But Philly Fed President Charles Plosser said that the Fed should begin reducing the pace of its asset purchases as early as September and end the program by year-end. Then, St. Louis Fed President James Bullard reiterated his opposition to dialing down the stimulus, according to The Wall Street Journal. Here we go again with conflicting comments from Fed members.

At Fridays close, the Dow Jones Industrial Average was up 3 points to 15,464, the S&P 500 gained 5 points at 1,680, and the Nasdaq rose 22 points to 3,600. The NYSE traded 681 million shares and the Nasdaq crossed 443 million. Advancers and decliners were even on the Big Board, but on the Nasdaq, advancers were ahead by 1.23-to-1.

For the week, the Dow gained 2.2%, the S&P 500 rose 3%, and the Nasdaq jumped 3.5%.

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The price action of the S&P 500 is bullish, despite not being able to punch through the old May high at 1,687.18. But the Relative Strength Index (RSI) is overbought and almost at the level of May, which marked the top. Support is at the June high of 1,654, and then at the 50-day moving average at 1,633.

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This weekend several technicians highlighted the long-term chart of the Dow industrials, noting that at least three long-term trendlines one going back to 1982, another at 1987, and a third in 1998 converge at about 16,000. Near term it is best to focus on the May high of 15,521.49 because, like the S&P 500, the Dow has yet to surpass this years high.

Conclusion: With both the Dow and S&P 500 making new closing highs, new intraday highs are to be expected since each index is trading in a bullish V upside reversal pattern.

But the bears would respond to that statement by noting the lackluster volume and weak market breadth, which has been split 50/50 for several weeks between advancers and decliners both signs of fatigue. They question the ability of the senior indices to continue without a boost in volume. And one analyst noted an extremely overbought NYSE McClellan Oscillator. The McClellan Oscillator is similar to RSI. And the RSI is overbought and, like the McClellan, close to Mays top.

But price tops all other indicators dont fight the tape or the Fed. Both are telling us that the trend is still bullish for near-term, intermediate-term and long-term charts.

Todays Trading Landscape

To see a list of the companies reporting earnings today, click here .

For a list of this weeks economic reports due out, click here .