On Friday, stocks recovered a portion of the losses sustained earlier in the week, which were due in part to concerns over a Portuguese bank that missed a debt payment. But as the day progressed, investors’ focus turned to U.S. corporate earnings.
With the exception of financials, it was the large caps that responded with gains that were enough to put the three major indices in the black. Boeing (BA), General Electric (GE), United Continental (UAL) and Norfolk Southern (NSC) all jumped over 1%. And Google (GOOGL) and Facebook (FB) gained 1.1% and 2.3%, respectively. Most countercyclical sectors ended higher, but utilities closed lower by 0.8%.
The yield on the 10-year Treasury note dropped to 2.52%. Gold futures fell slightly, off 0.2% to $1,337 an ounce.
At Friday’s close, the Dow Jones Industrial Average rose 29 points to 16,944, the S&P 500 gained 3 points to 1,968, and the Nasdaq was up 19 points at 4,415. The NYSE’s primary market traded 582 million shares with total volume of 2.7 billion shares. The Nasdaq crossed 1.5 billion shares. Advancers exceeded decliners on the Big Board by 1.2-to-1, while they were breakeven on the Nasdaq.
For the week, the Dow fell 0.7%, the S&P 500 dropped 0.9%, the Nasdaq lost 1.6%, and the Russell 2000 fell 4%.
Although the Dow was unable to maintain 17,000, Friday’s rally did manage to hold above its 20-day moving average at 16,903. Most importantly, the industrials ended the week within the bull channel that began in February.
Two important inflection points exist on the Nasdaq chart — the March peak at 4,371 and Thursday’s low at 4,351. Even though MACD is in a bearish zone, the chart is positive as long as the support zone of 4,351 to 4,371 holds.
Conclusion
Last week, the major indices survived tests of key support zones. But a violation of the S&P’s line at 1,950 could lead to a test of its 50-day moving average and a full 50% Fibonacci retracement of the May low to July high. The index closed the week at a healthy 1,967.57, finding intraday support at its 20-day moving average at 1,961.27 — a positive development.
Last week’s late rally in the Nasdaq and Dow industrials is also encouraging for the bulls. Even though the Dow was unable to maintain 17,000 (a number that has psychological impact but no technical meaning), it managed to hold above its 20- and 50-day moving averages and stay within the important bull channel. And the Nasdaq closed Friday above its 20-day average at 4,390 and the support zone at 4,351 to 4,371.
The market is discounting the Federal Reserve’s cut in bond buying and is focusing on earnings. Many analysts expect Q2 to produce average increases of 5%-plus. This is a hefty number and disappointments in major big-cap stocks will not be tolerated. Thus, despite the positive price action, I remain cautious as we enter the most difficult time of the year.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
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