Despite a batch of disappointing economic reports yesterday, the stock market managed to hang onto a small gain.
The markets opened higher on better-than-expected economic numbers from Europe and better-than-expected earnings from Wal-Mart (WMT). But when the U.S. jobless claims came in higher than expected and retail sales for July missed the target, stocks turned down.
However, the pullback didn’t last long as buyers in banks emerged, driving the sector to a 2% gain for the day. The leader of the group was again Bank of America (BAC), which rose on news that insiders were buying the stock, as well as Paulson & Co.
Materials stocks gained too, up 2.1%, with steel and coal companies leading the charge. Peabody Energy (BTU) gained 6.1%, and Consol Energy (CNX) was up 7.3%.
Treasuries did well yesterday following a $15 billion auction of 30-year bonds. The auction produced a high yield of 4.54%.
At the close, the Dow Jones Industrial Average (DJI) was up 37 points to 9,398, the S&P 500 (SPX) gained 7 points to 1,013, and the Nasdaq (NASD) rose 11 points to 2,009.
The NYSE reported trading only 777 million shares with advancers ahead by 2-to-1. The Nasdaq crossed 622 million shares with advancers ahead by 7-to-5.
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Crude oil for September delivery rose 36 cents to $70.52 a barrel, and the Energy Select Sector SPDR (XLE) closed at $51.47, up 62 cents.
Gold (December contract) rose again on a weaker U.S. dollar, closing up $4 at $956.50. The PHLX Gold/Silver Index (XAU) gained $4.32 to $148.99.
What the Markets Are Saying
Yesterday’s seemingly minor advance by U.S. stocks took all three major indices to within just a hair of another breakout. And, yet, the lethargy of trading, along with a preponderance of negative internal indicators, seemed to say that we will most likely pull back to the next area of support.
But a break by the S&P 500 above a resistance line drawn from the March high to the June highs would signal that a powerful new advance is under way.
That line connects precisely to this week’s high at 1,013. A close above that line and the Aug. 7 high of 1,018 would most likely lead to another run by the bulls.
But with the inability to break 1,013 and our first target of 1,005 to 1,010 already met, the chances are better than even that we will pull back to the first support zone, the 20-day moving average at around 985. And a failure there could result in a fall to 945 to 950.
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Like the S&P, the Nasdaq’s internal indicators are also overbought, with Relative Strength Index (RSI) recently hitting a grossly overbought 75.51 on Aug. 4.
If the Nasdaq fails to hold, the next area of support is broad, and runs from 1,770 to 1,880. But if a breakout on a close above 2,015 occurs, look for a volatile launch to the major target of 2,300 — a launch that could very well take the rest of the market with it.
Today’s Trading Landscape
Earnings to be reported include: Abercrombie & Fitch (ANF), Aurizon Mines Ltd. (AZK), FNX Mining Co. (FNX), Hydrogenics Corp. (HYGS), JC Penney (JCP), Knightsbridge Tankers Ltd. (VLCCF), Petrobras Petroleo Brasileiro (PBR) and VanceInfo Technologies (VIT).
Economic reports due: core consumer price index (the consensus expects +0.1%), industrial production (the consensus expects +0.6%), capacity utilization (the consensus expects 68.6%), and Reuters/University of Michigan Consumer Confidence Index (the consensus expects 69).
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