On Friday, buyers kept a four-week gain alive as a steady flow of low-volume purchases dominated trading.
With 126 of the 500 S&P companies reporting, FactSet shows Q2 earnings are on track to decline 4.4% from a year ago. But analysts had previously expected earnings to fall 5.3%.
Notable earnings movers included Honeywell International Inc. (NYSE:HON), which declined 2.6% after reporting revenue and earnings gains but cutting its annual sales forecast. General Electric Company (NYSE:GE) lost 1.6% despite an earnings beat as management said it faces a “a volatile and slow-growth economy.”
At Friday’s close, the Dow Jones Industrial Average gained 54 points at 18,571, the S&P 500 added 10 points at 2,175, the Nasdaq rose 26 points to 5,100, and the Russell 2000 advanced 9 points to 1,213.
The NYSE Composite’s primary exchange traded 751 million shares with total volume of 3 billion. The Nasdaq crossed 1.6 billion shares. On both major exchanges, advancers outpaced decliners by almost 2-to-1. Block trades on the NYSE fell to 4,148 from 4,786 on Thursday.
For the week, the Dow rose 0.3%, the S&P 500 gained 0.6%, the Nasdaq jumped 1.4%, and the Russell 2000 closed 0.6% higher.
After breaking out from resistance at 18,014, the Dow Jones Industrial Average made nine gains before sustaining a loss on Thursday. However, Friday’s gain, which came close to settling at its high of the day, recovered almost all of Thursday’s decline.
First support is Thursday’s low at 18,470. MACD is slightly overbought but buyers outnumbered sellers by 2-to-1, sustaining the advance.
Despite some problems with airline stocks, the Dow Jones Transportation Average also recovered all of Thursday’s loss. Friday’s advance was accompanied by a cross of the 50-day moving average up through the 200-day moving average. If that move can be sustained, a new golden cross long-term buy signal would occur.
Like the senior indices, the Nasdaq had a positive day on Friday. However, it reversed from its low of the day to make a new annual closing high — a truly impressive performance.
Conclusion
Until late last week, the market’s advance was led by the Dow 30 and S&P 500. But group rotation, favoring the mid- and lower-quality stocks, occurred on Friday. The Nasdaq’s reversal from the daily low to a new closing high for the year was just what the doctor ordered. But can the market’s advance be sustained?
Joe Granville, whom I met in the early 80s, wrote about on-balance volume, saying that “reduced volume” is “negative volume on the upside.” In other words, investors do not believe the rally.
I was reminded of this by Raymond James’ Jeff Saut in his “Morning Tack,” as he recounted Joe’s comments and a survey that showed cash balances are at the highest levels since 2001.
With earnings coming in better than anticipated this season, it is likely stocks will continue to advance.
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.
