The Week Ahead: A benign inflation report served as a catalyst for a continuation of a rally that started July 18. A slowing economy as evidenced by the weakening transportation and housing sectors may keep the Fed interest rate policy on hold this Wednesday at the FOMC meeting. Before that, Tuesday brings housing start numbers for August along with the PPI. Friday ends the week with the leading economic indicators for August.

Stocks to Watch: Adobe Systems (ADBE) gapped significantly higher after reporting a strong revenue increase last quarter, but the shares maybe topping as it closes a downside gap from May. Intercontinental Exchange (ICE) is acquiring the NY Board of Trade as its shares rise on the synergies the merger may hold. This sparked the whole group higher as BOT, CME, ISE, and NYX surged, but all are currently in overbought position and are making a series of lower highs on intermediate charts indicating an approaching top.

Special Note: Although the Dow, S&P 500, and Nasdaq have climbed to there highest levels since early May an important divergence has occurred. The last three days have reached higher levels each day, but the stochastic technical indicator has been falling each day. By itself, this is not rare but coupled with narrowing breadth (advance/decline ratio) on up days and expanding negative breadth on down days portends a top formation. Investors should use caution entering positions highly correlated to the major indexes.


Commentary provided by Barry Ward, Registered Principal, NobleTrading.com, Inc.

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