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What to Make of Conflicting Signals in the Market

Scott Redler

The market spent the morning in negative territory Monday but staged an afternoon bounce to close back within a stone's throw away from pivot highs. Last Monday, the market was plunged into turmoil by surprising Italian elections and fears about the looming sequester, but stocks have been able to shrug off that harsh intraday sell-off. The S&P closed today right back at those highs from last Monday, up 0.46%, and looks poised to potentially resume the 2013 grind higher.

Stocks that have been leading the market this year continue to do so today, with recent favorites Google (GOOG) and LinkedIn (LNKD) making new highs once again. GOOG finished up 1.85% while LNKD surged an impressive 4.36%. While it's difficult to initiate new long positions in either stock at these levels, it's very healthy to see high-profile stocks making all-time highs.

There are also several stocks from my 2013 predictions that are acting well. Yahoo! (YHOO) in particular continues to extend higher as investors cheer the early work of new CEO Marissa Mayer. Mayer, a former Google exec credited with the search engine's clean homepage trademark, courted controversy in her decree last week that all Yahoo! employees work in a headquarter office, rather than remotely. Her logic? VPN data showed that perhaps the company's employees were not being as productive as they suggested. All that aside, YHOO was up another 3.46% today.

Facebook (FB) enjoyed a strong start to 2013, hitting our targets quickly after breaking out of a perfect cup and handle pattern. After a pull-back following earnings, FB looks like it could be setting up another cup and handle pattern--this time on the weekly chart. Keep an eye on the current descending channel for a potential trigger.

From a sector analysis perspective, there are a few conflicting signals right now. Dow theorists say when Transports (IYT) lead Industrials (XLI) higher in a bull market, it's a sign of impending economic growth and additional upside in the stock market. However, on a shorter time frame right now you are seeing defensive sectors like Utilities (XLU) and Consumer Staples (XLP) lead the market, which is more of a risk-off signal. In addition, when you start to see erratic action near highs, it is often considered a red flag. What does all of this tell me? The macro trend remains to the upside, but we could be due for some rest or corrective action in the more immediate future.

A stock specific approach remains best in this environment, as you don't need to make sense of the short-term gyrations in the indices to identify the most bullish chart patterns.

T3Live's next Active Trader Summit is being hosted in Charlotte, North Carolina on March 16th. These events have been filling up quickly, so purchase your tickets soon if you want to attend. We look forward to another great education and networking event.

*DISCLOSURES: Scott Redler is long MSFT, GS, F, FB, BAC, EBAY, ZNGA, WFC, NKE, WMT. Short SPY.