A broad run of better-than-expected earnings led the Dow Jones Industrial Average (DJI), the S&P 500 (SPX) and the Nasdaq (NASD) to breakout highs. Also acting as a catalyst was the third month of increasing existing homes sales.
Ford (F), eBay (EBAY), 3M (MMM), Qualcomm (QCOM), SanDisk (SNDK), Diamond Offshore Drilling (DO) and AT&T (T), as well as others, exceeded earnings forecasts. And even though almost all of them saw a decline in revenues and benefited from cutting costs, buyers focused on the earnings, not the method of achieving them.
The Dow finished at the best level since January — topping 9,000 — and the S&P 500 was its best since November.
The Nasdaq, which started the buying with a breakout several weeks ago, traded at its highest level since October. The Nasdaq has advanced for 12 successive sessions, an accomplishment not seen since 1992.
According to Thomson Reuters, 76% of companies reporting earnings have exceeded forecasts. This eclipses the 73% record of Q1 2004, which was the highest recorded by Thomson Reuters since they began tracking the percentage in 1994.
At the close, the Dow was up 188 points to 9,069, the S&P 500 rose 22 points to 976, and the Nasdaq gained 47 points to 1,974. The NYSE traded 1.4 billion shares with advancers ahead of decliners by 5-to-1. On the Nasdaq, 921 million shares traded with advancers ahead by 4-to-1.
September crude oil rose $1.76 to $67.16 a barrel, and the Energy Select Sector SPDR (XLE) gained $1.40 to $50.66.
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August gold gained $1.50 an ounce to $954.80, and the PHLX Gold/Silver Index (XAU) gained $1.15 at $149.29.
What the Markets Are Saying
The new breakout for the Nasdaq was confirmed yesterday, as it closed at 1,974.
What is even more important, though, is that by reaching 1,937 (which is 3% of 1,880), it confirmed a new major uptrend. And it did it with one of the most powerful moves ever recorded — 12 successive days up — which, as I mentioned, is a feat not seen in more than 17 years.
The next area of resistance for Nasdaq is 2,013, which is a low going back to July 2006, but the minimum target for the breakout is 2,300.
As for the S&P 500, the massive bottom formation began back in October with the ultimate bottom of the bear market at 667 on March 6.
The very deceptive false head-and-shoulders we witnessed two weeks ago led to a massive reversal and breakout through the resistance zone at 945 to 950 yesterday, with a clear violation of resistance at 956.
The next level of resistance for the S&P is 1,014, which is a 38.2% Fibonacci retracement of the bear market from October 2007 to March 2009. But the minimum target for the S&P 500 is well above that at 1,245 — the distance from the low of 667 to 956 (289 points) added to 956.
But the path higher won’t be easy, and we may see selling today resulting not only from a very overbought market, but also from some earnings disappointments announced after yesterday’s close.
But it looks like the bull is back in the ring, so pullbacks may again be viewed as buying opportunities.
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Today’s Trading Landscape
Earnings to be reported include: Active Power, Alexander & Baldwin, AMCOL International, Arch Coal, Ashland, Black & Decker Corp., CIT Group, Donegal Group, Dover Corp., Encore Bancshares, Exelon Corp., First Financial Holdings, Fortune Brands, Horizon Lines, Idexx Laboratories, Ingersoll-Rand Co. Ltd., IPC Holdings, IPSO Ventures plc, Lance, Metals USA, MetroCorp Bancshares, optionsXpress Holdings, Pinnacle Entertainment, Saia, Schlumberger, Sepracor, Standard Register, Syngenta, Telefon AB LM Ericsson, Viad Corp., Virginia Commerce, Wabtec Corp., West Coast Bancorp and Wilmington Trust.
Economic report due: University of Michigan’s Consumer Sentiment Index (the consensus expects 65).
Late news: Following yesterday’s close, Microsoft (MSFT) reported Q4 earnings per share of 34 cents versus an estimated 36 cents.
Amazon.com (AMZN) reported Q2 EPS of 32 cents versus an estimated 31 cents, but the shares fell sharply in after-hours trading.
Schlumberger (SLB) reported Q2 EPS of 51 cents versus an estimated 63 cents. Eastman Chemical (EMN) reported 89 cents versus an estimated 71 cents. Chub (CB) reported $1.54 versus an estimated $1.30.
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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.
