Stocks finished modestly higher Friday, opening lower and then clawing their way back by the closing bell. The week also ended with a gain, making it the third consecutive weekly gain and the longest winning streak since February.
Although earnings have been erratic, they have not yet turned into the disaster that some analysts predicted. Fifty-eight companies of the S&P 500 reported earnings, which are down 4.6% in the third quarter so far, according to FactSet. The firm forecasts an overall decline of 5.1% for the quarter.
General Electric Company (GE) reported earnings on Friday that beat estimates and shares rose 3.4%.
The year’s best-performing sector until August, biotech, fell with the iShares NASDAQ Biotechnology Index (ETF) (IBB) dropping 0.1% on the close after being up for most of the day.
The Dow Jones Transportation Average fell 1.6%. Kansas City Southern (KSU) had a negative impact on the index, dropping 10.9% after reporting earnings and revenues that missed estimates.
Consumer prices fell to a seasonally adjusted 0.2% in September, and manufacturing data in October was weak. Jobless claims in the Oct. 10 week declined to a seasonally adjusted 255,000, the lowest level in over 40 years.
Gold lost 0.4% at $1,183.60 an ounce, and crude oil rose 1.9% to $47.26 a barrel. The yield on the benchmark 10-year Treasury note rose fractionally to 2.02%. The euro was unchanged at $1.14.
At Friday’s close, the Dow Jones Industrial Average rose 74 points to 17,216, the S&P 500 gained 9 points at 2,033, the Nasdaq was up 17 points at 4,887, and the Russell 2000 fell a fraction to 1,162.
The NYSE Composite’s primary exchange traded 959 million shares with total volume of 3.6 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, advancers outpaced decliners by 1.5-to-1, and on the Nasdaq, decliners led by 1.1-to-1.
On the surface the Dow Jones Industrial Average is achieving a successful advance against minor selling. But a closer look at this chart shows the index has only begun to enter the major selling zone (resistance) at 17,164 to the 200-day moving average at 17,582. And the relatively low volume of buyers versus sellers is not conducive to a further advance.
Meanwhile, the index that holds the key to the market’s success, the Dow Jones Transportation Average, has stalled at the major resistance line at 8,200 and is trading in a narrow zone defined by that line and the 50-day moving average at 8,013. Low volume and an overbought MACD add to the negative outlook.
Conclusion
The conundrum noted last week, a Dow non-confirmation (divergence), is taking shape. Unless institutional volume picks up enough to move both Dow indices through their immediate resistance zones, the rally of the past three weeks appears doomed to fail.
And with a lack of support from the small- and mid-cap indices, noted in Friday’s Daily Market Outlook, this is no time to expect support from big money enamored by the Federal Reserve’s decision to delay an interest rate hike.
Again, leaving rates at the current levels is not a reason to buy stocks in my opinion. Higher earnings and increasing dividends are why institutions take long-term stock positions, because that is the basis of growth.
This is why I think any rally from the current level will likely fail and stocks will fall further than normal due to being propped up by a policy based on hope and not substance.
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.
