On Thursday, stocks were strong out of the gate on data that the European economies and China are improving. And a commitment by China to loosen monetary policy was greeted warmly by the markets.
But as the session wore on, anxiety over a possible disappointment in Friday’s jobs report dampened the markets, and by mid-afternoon, most of the earlier gains had evaporated.
But weekly gains on U.S. jobless claims were stronger than anticipated (a report that precedes the official payrolls report on Friday), and the best ISM manufacturing index reading in five years pushed stocks higher in the last hour of trading.
For the month of March, manufacturing output expanded at the fastest rate in 40 months in Germany and France. And the U.K. manufacturing was the strongest since 1994.
The Nasdaq (NASD) was the weakest of the major indices, hurt by a disappointing revenue forecast from Research In Motion (RIMM). Goldman Sachs (GS) followed the RIMM report with a downgrade on the stock to a “sell.”
At Thursday’s close, the Dow Jones Industrial Average (DJI) was up 70 points to 10,927, the S&P 500 (SPX) rose 9 points to 1,178, and the Nasdaq gained 5 points to 2,403.
Pre-holiday trading was very light with just 915 million shares crossing on the NYSE, and advancers exceeded decliners by 3-to-1. The Nasdaq traded 614 million shares with advancers ahead by 3-to-2.
Crude oil for delivery in May rose $1.11 to $84.87 a barrel after a smaller-than-expected increase in U.S. storage levels. The Energy Select Sector SPDR (XLE) rose $1.02 to $58.54.
June gold rose $11.60 to $1,126.10 an ounce following the string of European gains and the drop in jobless claims. The PHLX Gold/Silver Sector Index (XAU) closed at 171.28, up 6 points, breaking from support at 160 and confirming an earlier break through its bearish resistance line. A higher close today would break a triple-top at 172 and result in a strong buy signal.
What the Markets Are Saying
Last week’s gain of 77 points for the Dow and 12 points for the S&P 500 left fewer bears prowling. However, the disappointing outlook for Research In Motion trimmed the Nasdaq back to only a small gain for the day and week. RIMM’s slip illustrates how fragile the markets can be at overvalued levels when one stock’s fall could cause an entire broadly based average like the Nasdaq to be so severely impacted.
But momentum is still strongly in favor of the bulls and the targets for the next round of buying look like the following: Dow 11,170 (assuming the psychologically significant barrier at 11,000 is penetrated early), S&P 500 1,200, and Nasdaq 2,460. Support resides at Dow 10,730, S&P 500 1,150, and Nasdaq 2,326.
Friday’s better-than-expected jobs numbers may have been discounted, and some of the new money naturally flowing to The Street at the beginning of a quarter may have already been spent. Next week will start the new earnings season and expectations are high. With these factors as a backdrop to the new quarter and prices at 14-month highs, the bulls can’t afford too many earnings misses and even fewer economic hiccups.
I choose to remain a cautious but optimistic bull. When entering a mine field it is better to probe than to trot.
Today’s Trading Landscape
There are no significant earnings to be reported.
Economic reports due: ISM non-manufacturing index (the consensus expects 54) and pending home sales.
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