Stocks Are Ready to Embrace Positivity

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Friday produced another new high for the Nasdaq Composite, with the index gaining 0.9% as it extended its record to a second day.

Google (GOOG, GOOGL) jumped 16% following better-than-expected earnings. The technology sector outperformed during the entire session and closed higher by 1.8%. But while tech stocks flourished, others did not fare as well. Consumer discretionary stocks and the financial sector fell 0.2%, and energy fell 1.1% as crude oil declined slightly.

European markets were mixed despite the IMF’s approval of Greek’s bailout plan. France’s CAC-40 rose 0.1%, but Germany’s DAX fell 0.4%. The Stoxx Europe 600 rose 0.1%. The IMF insists that Greece include a restructuring plan along with aggressive financial reforms.

U.S. housing starts rose 9.8% in June from May. Multifamily construction increased 29.4%, registering the highest level since April 1988.

Gold for July delivery fell 1% to $1,131.80 per ounce, and crude oil fell 0.04% to $50.89 per barrel. The benchmark 10-year Treasury’s yield fell to 2.349% from 2.352%.

At the close, the Dow Jones Industrial Average was off 34 points at 18,086, the S&P 500 rose 2 points to 2,127, the Nasdaq Composite jumped 47 points to close at 5,210 and the Russell 2000 closed at 1,267, down 6 points. The NYSE’s primary market traded 874 million shares with total volume of 3.3 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.8-to-1, and on the Nasdaq, decliners led by 1.5-to-1.

For the week, the DJIA rose 1.8%, the S&P 500 rose 2.4%, Nasdaq jumped 4.3%, and the Russell 2000 gained 1.2%.

VIX
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Despite the long-term bullish direction of stocks, the CBOE Volatility Index, otherwise known as the VIX or “Fear Index,” is showing extreme complacency — and that could be telling us to expect some near-term uncertainty.

On Friday, the VIX closed at its lowest reading of the year. The VIX is a contrarian indicator, and thus its proponents claim that highs indicate undue market fear (market should rally), and lows in the VIX are supposed to indicate undue market complacency (market should fall). The prior lows of May 21 and June 23 did produce S&P 500 declines of 3% and 4%, respectively. But the VIX has spotty performance of prior highs and lows.

S&P 500 support
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Chart Key

Our chart of the S&P 500 is bullish in the near term, pending no violation of its first line of support at its 50-day moving average, now at 2101.52 and finally at the support line at 2,080. MACD is slightly overbought (near term) but bullish for intermediate term. Even if those lines were tested, the support at the 200-day moving average at 2,059.69 appears solid.

Conclusion

The Dow is up just 1.5% YTD and the S&P 500 has gained only 3.3% YTD, but now the market has turned positive on better-than-expected earnings. Second-quarter reports have been adjusted to expect a fall of 3.6% in Q2 EPS, where analysts had projected a drop in Q2 earnings of 4.5%.

And as Greece’s and thus Europe’s problems have taken a back seat, earnings have turned less negative than expected. Thus we may be finally seeing a focus shift with stock prices finally reacting to better quarterly reports.

As go earnings, so goes the market.

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.


Article printed from InvestorPlace Media, https://investorplace.com/2015/07/stocks-are-ready-to-embrace-positivity/.

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