The Dow Jones Industrial Average (DJI) and the Nasdaq (NASD) closed higher Friday, making it the fifth day in a row they were up. And even though the S&P 500 (SPX) was fractionally down, it was the best week in four months for stocks.
On Friday, the Dow got a boost from IBM (IBM), which rose 4.3% after reporting better-than-expected earnings. But General Electric (GE) fell 6.1%, and 17 of the Dow 30 stocks were decliners. For the Dow, the weekly gain snapped a four-week losing streak.
However, the S&P 500 and the Nasdaq were hurt by a 2.8% decline in Google (GOOG). After the close on June 16, GOOG reported gains that met expectations, but missed on revenue growth. Google closed lower by 2.79%.
At the close Friday, the Dow was up 32 points to 8,744, the S&P 500 fell less than a point to 940, and the Nasdaq gained 2 points to 940.
The NYSE traded 1.3 billion shares with slightly more decliners than advancers. On the Nasdaq, decliners exceeded advancers by 7-to-5, with 664 million shares trading.
For the week, the Dow was up 7.3%, the S&P 500 gained 7%, and the Nasdaq rose 7.4%.
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August crude oil rose $1.54 to settle at $63.56 a barrel, and the Energy Select Sector SPDR (XLE) gained 28 cents to close at $48.45.
August gold rose $2.10 to $937.50 an ounce, and the PHLX Gold/Silver Index (XAU) gained $2.13 to $144.36, as investors again focused on gold as a hedge against inflation. (Learn 7 Ways to Hedge Against Inflation.)
What the Markets Are Saying
Last week’s amazing 5-for-5 run had more to do with some outstanding earnings surprises from the big hitters than with technical reasons. And it drove the major indices to the upper limit of trading ranges that have been in place since early May.
For the bulls to keep last week’s rally going, they will have to have some new earnings surprises that will punch the Dow through the June 11 high at 8,878 and the S&P high of 956.
Can they do it?
Momentum is now strong, but overbought. The Moving Average Convergence/Divergence (MACD) and the stochastics (both slow and fast) are also overbought. And the Relative Strength Index (RSI) is where it was on June 11, the last top.
We will remain on the sidelines for a couple of sessions since a breakout from the current levels would be a major buy signal.
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On the other hand, the stock market has frustrated both bulls and bears for the past four months by trading in a zone that is bounded by S&P 880 on the bottom and 956 on the top. So the chances are high that it will continue to thwart the mass of traders who are now bullish.
It is time to sit back and enjoy the circus. The ringmaster is about to tell us whether the bull or bear is about to enter the center ring.
Today’s Trading Landscape
Earnings to be reported include: Allscripts-Misys Healthcare Solutions, Astec Industries, Boston Scientific Corp., Brown & Brown, Cache, Canadian National Railway, Ceragon Networks Ltd., Citizens South Banking Corp., Eaton, Education Realty Trust, Edwards Lifesciences, Great Atlantic & Pacific Tea, Halliburton, ICU Medical, Idenix Pharmaceuticals, Idex, Johnson Controls, Legg Mason, Lincare Holdings, M&T Bank Corp., Packaging Corp. of America, Peoples Bancorp of North Carolina, PetMed Express, RLI Corp., S&T Bancorp, Saba Software, Sensient Technologies Corp., Sun Bancorp (NJ), Texas Instruments, Volterra Semiconductor Corp., Weatherford International and Zions Bancorp.
Economic report due: Conference Board’s index of leading economic indicators.
Late news: CIT Group (CIT) reached an agreement on a $3 billion rescue plan. Hasbro (HAS) reported Q2 earnings per share of 26 cents versus an estimated 23 cents. So far, 71% of S&P 500 companies have beaten earnings 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 his most recent market outlooks.
