On Friday, stocks reacted to Thursday’s reversal (up) with a minor advance due to solid earnings from major banks. JP Morgan Chase & Co. (NYSE:JPM), Citigroup Inc (NYSE:C), and Wells Fargo & Co (NYSE:WFC) all exceeded analysts’ earnings estimates.
Banks led for the week, since most analysts expect the Federal Reserve to raise short-term rates before the end of the year. The sooner the better for banks, since when the gap widens between the rate that they pay on deposits and what they charge on loans, their income increases from the wider spread. Fed-funds futures were reported to indicate the probability of a rate hike by December to have increased to 69%.
Reports also show that the economy continues to grow, albeit at a slow rate of advance. Retail sales increased 0.6% in September, according to the Commerce Department.
The dollar continued to rise, gaining 2.1% vs. the euro and 1.2% vs. the yen, according to The Wall Street Journal. This could put pressure on sales for global companies, since a rising dollar could stifle sales.
At the close on Friday the Dow Jones Industrial Average rose 40 points to close at 18,138, the S&P 500 closed flat at 2,133, the Nasdaq gained a point at 5,214, and the Russell 2000 fell 3 at 1,212. The NYSE’s primary exchange traded 808 million shares with total volume of 3.2 billion shares. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers were slightly ahead of decliners, and on the Nasdaq, decliners led by a small margin. Blocks on the NYSE fell to 5,138 vs. 5,263 on Thursday.
For the week: the DJIA fell 0.6%, the S&P 500 was down 1%, the Nasdaq lost 1.5%, and the Russell 2000 was hit with a 2.0% loss.
On Thursday, the S&P 500 reversed up on what Japanese candlestick followers call a “hammer.” I don’t chart by that method but find it curious that a “hammer” occurred within 4 points of my internal indicator’s CBR Buy reversal on Sept. 12. So there is significant support at 2,115 and resistance at the bearish resistance line and 50-day moving average at about 2,165.
Conclusion: Much of the year has been spent trading markets within narrow monthly bands. But occasionally, as in late January/February, and again in late June, sellers offered gifts to buyers, who, if they had courage and had been patient, benefited from a short-term panic.
I believe that we may be reaching another possible opportunity before Dec. 31, and for those who are patient and have courage, some event, now vague, could drive a sell-off.
One of the best strategists I know of, Jeff Saut, said in his latest “Morning Tack,” when referring to the recent false breakout of a triangle formation, “fortunately we did not act on it preferring to exercise patience.” And that means buying into corrections, not chasing stocks. The key to performance is patience.
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.
