On Thursday, stocks achieved small gains ahead of key earnings results from some of Wall Street’s most influential stocks.
However, mid-cap stocks continued to be in focus. The Nasdaq’s stocks were in demand, and its move into uncharted territory continued with a gain of 0.4%. But the other major indices failed to follow: The Dow Jones Industrial Average was unchanged, and the S&P 500 rose 0.1%. Despite the focus on earnings and the positive impact of a 0.6% gain in the technology sector, the rest of the 500 results were flat to lower, thus the small overall gain.
Crude oil fell 1.2% following an inventory report from the EIA which showed an unanticipated increase in gasoline inventories for the week ending April 21. And with the move lower in crude, prices fell below the technical support level of its 200-day moving average. The energy sector of the 500 fell 1.1% in response to the decline in WTI to $49 per barrel.
At the close, the Dow Jones Industrial Average gained 6 points, closing at 20,981, the S&P 500 was up one point at 2,389, the Nasdaq rose 24 points to close at 6,049, and the Russell 2000 closed at 1,417 for a loss of 2 points. The NYSE’s primary exchange traded 1 billion shares with total volume of over 4 billion shares, and the Nasdaq crossed 1.9 billion shares. On the Big Board, decliners and advancers closed even, and on the Nasdaq, decliners led by a small margin.
On Wednesday, I focused on the Nasdaq’s near-term “W” formation and the implications of a breakout propelled by a break-away gap followed by a continuation gap. Today we consider the implications of the formation from an intermediate view: Five steps up, followed by a “W” and gaps could not only be a sign of high demand but also of an irrational chase. The “W” provides a target of 6,050, and yesterday’s high was fractionally above that.
Conclusion: On Wednesday I said, “Even though the Nasdaq is the sole achiever of a new high, its reflective power, especially in the technology sector, is significant. Gaps, both Break-Away and Continuation, occurred on the DJIA and the S&P 500, and that means that the Russell 2000, which missed a new high by a fraction, will also jump to uncharted territory.” But so far the other indices are lagging.
Banks and other financials, as well as technology stocks, are still prime candidates for cash that has been squirrelled away. Why? Because their earnings are strong and getting stronger. This market is still geared to geo-political events and the administration’s tax policies. Earnings among lagging stocks are strong, thus, I conclude that the time for ignoring the Nasdaq and focusing on value is now. The gamblers will continue to chase the high P/E stocks of the Nasdaq but are unprepared for the whiplash of a correction. The time to buy quality is now.
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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