After trading flat for most of the day in a rather dull session, the financial stocks rallied in the last half hour of trading Thursday to close the markets on a plus. Although financial stocks outperformed the other sectors throughout the session, it was a rush of buying that turned things around and closed the sector up 4.5%.
The banks rallied before the announcement of the Treasury bank stress test measures today, but the final numbers won’t be released until May 4. With the Treasury Department’s results of the tests still top-secret, there was some anxiety among the regional banks, so they didn’t participate as well as the nationals yesterday even though they still advanced by more than 3%.
But the rest of the market was flat despite excellent earnings by Apple (AAPL), eBay (EBAY), and ConocoPhillips (COP). United Parcel Service (UPS) missed its earnings estimate, as did Nucor (NUE). And the existing home sales report showed that March sales fell 3% to 4.57 million. Annualized sales were expected to total 4.65 million units.
At the close, the Dow Jones Industrial Average (DJI) was up 70 points to 7,957, the S&P 500 (SPX) gained eight points to 852, and the Nasdaq (NASD) rose six points to 1,652.
Volume on the New York Stock Exchange totaled 1.6 billion shares with advancers ahead of decliners by 3-to-2. On the Nasdaq, 869 million shares traded with more decliners than advancers by 8-to-5.
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What the Markets Are Saying
Despite yesterday’s rally, led by a late rush to buy the financial stocks, the S&P 500 (SPX), along with the other major indices, has broken down from the stair-step (or wedge) patterns that have characterized the bear-correction rally of the past six weeks.
This and sell signals from our internal indicators (chiefly the Moving Average Convergence/Divergence, or MACD, stochastic, and momentum) tell us that the rally has tired and that the next move is most likely down. “In addition put/call ratios have dropped to dangerous levels,” per Standard & Poor’s, and investment polls and letter writers have moved to the bullish side, which is a contra-indicator.
Key resistance is still at SPX 875 to 920. On the downside, there is some support at 820, but the next level of solid support does not appear until 780. A full 50% correction of the March to April rally would take the S&P 500 to around 770.
For the bulls to turn the market positive, they must close the S&P 500 (SPX) above the April high of 875 and Dow (DJI) 8,250. And to keep the rally going, the S&P 500 must close above Tuesday’s low of 827.
Today’s Trading Landscape
Earnings to be reported include: 3M Co, AMCOL Int’l, Arch Coal, Champion Enterprises, Community Health Systems, Delta Apparel, Donegal Group, DRDGOLD Ltd, Encore Bancshares, First Financial Holdings, Ford Motor Co, Grupo Aeroportuario del Sureste (ASUR), Hitachi Capital Corp, Honeywell and Horizon Lines.
Idexx Laboratories, Interceramic-Internacional de Ceramica, S.A. de C.V., IPC Holdings, ITT Corp, Kennametal, KT Corp, Lance, Metavante Technologies, Nidec, Old Second Bancorp, Pinnacle Entertainment, Saia, Schlumberger, The Stanley Works, Wilmington Turst, and Xerox Corp.
In terms of economic reports, we can expect the March Durable Goods Orders and March New Home Sales.
Late news: Ford (F) reported Q1 results of 75 cents versus estimates of $1.23. Honeywell (HON) reported Q1 earnings in line with estimates of 54 cents but cut its future estimates.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
