On Friday, stocks sprang to life following days of meandering caused by Greece’s economic situation and the SEC-Goldman Sachs (GS) issue. European markets were higher on Friday as a result of a better outlook for Greece, and the U.S. markets fell in behind the Europeans with a burst of energy.
As for the Goldman Sachs, the government’s case appeared to weaken late in the week, and even if the government fully pursues the issue, it may take months or even years to fully resolve the many questions over Goldman’s actions.
Despite an overall stock surge, investors sold shares of Microsoft (MSFT) and Amazon.com (AMZN) after both reported better-than-expected earnings. And technology stocks lagged other sectors for the entire day.
The energy sector was the strongest performer, gaining 2.3%. Schlumberger (SLB) led the group with a gain of 6.6% on upbeat forecasts and an upgrade to “buy” from “hold” by S&P Equity Research. And RB Capital Markets initiated coverage of Exxon Mobil Corp. (XOM) with a “sector perform” rating and a price target of $80 a share.
Economic data appeared to have little influence on trading. But a surprise increase in new home sales for March led to an early rally in homebuilder stocks, which was offset by late selling in the group. Durable goods orders for March fell 1.3%, a disappointment since a gain of 0.2% had been expected.
The Dow Jones Industrial Average (DJI) closed at 11,204, a gain of 70 points, the S&P 500 (SPX) rose 9 points to 1,217, and the Nasdaq (NASD) was up 11 points to 2,530.
The NYSE traded 1.2 billion shares with advancers over decliners by about 7-to-3. The The Nasdaq crossed 60 million shares with advancers ahead by a margin of about 9-to-5.
Crude oil for June delivery gained $1.42, settling at $85.12 a barrel, and the Amex Energy SPDR (XLE) closed at $62.09, a gain of $1.46.
June gold spiked to $1,153.70 an ounce, a gain of $10.80, and the PHLX Gold/Silver Sector Index (XAU) gained 1.88 points to close at 172.43.
What the Markets Are Saying
In the last two weeks, the market has tested its 20-day moving average twice, and despite deeply overbought technical readings, both tests were a success. The most recent test occurred Thursday, with the Dow reversing from 11,016 and the S&P 500 reversing from 1,190. Then, on Friday, both reversals were confirmed by the late-afternoon rally, which took both major indices to new closing highs.
Even though the Dow and the S&P have had outstanding performances, it is still the Nasdaq that shines. On Thursday, the index reversed from above its 20-day moving average and closed at a new 12-month high, and then, on Friday, added to its advance. Immediate support for the Nasdaq is now at 2,480 with resistance at 2,550, which is 30 points higher than Friday’s close.
Despite the overbought condition in our internal and sentiment indicators, investors appear to be shrugging at the odds of a major reversal and buying stocks even as they make new highs.
Why is this? Well, there is probably more than one reason, but one that stands out is that the market is mostly in the hands of professional traders, coupled with institutional money that is constantly seeking a home. With interest rates on bonds at unacceptable levels, serious investors are willing to take risks in the stock market in order to have a chance at higher than zero returns (after fees).
One thing is certain: The public, though bullish in opinion surveys, is still not willing to put up cash to back up their opinion.
The Wall Street Journal and other publications ran article after article that was bullish with the lead on weekend editions being “Signs Point to More Stock Gains.” But a Barron’s article by Jack Willoughby was titled “Be Very Careful.” The article’s point was that money managers are showing signs of buyers’ fatigue, and are now “less bullish about the outlook for stocks than they were in the fall, in part because the pickings [of undeservedly cheap shares] are slimmer.”
Since “money managers” are considered to be “smart money,” I’d recommend taking their opinions seriously. Yes, there could be further gains. But what Mr. Willoughby appears to be saying is that the “bloom is off the rose.” The next phase of the market could be full of thorns, so be careful.
Today’s Trading Landscape
Earnings to be reported before the opening include: Alberto-Culver, Alliance Resource, AVX Corp., BlackRock, Boardwalk Pipeline, Caterpillar, Ceragon, Changyou.com, Check Point Software, China Security and Surveillance, Eagle Materials, First Niagara, Hertz Global, Humana, Lorillard, MB Financial, NV Energy, Old National Bancorp, OSI Systems, Private Bancorp, Roper Industries, Sohu.com, Travelzoo and Tuesday Morning.
Earnings to be reported after the close include: Aaron’s, Advanced Analogic Technologies, Albemarle, Alcon, American Capital Agency, Ameriprise Financial, Andigics, Anworth Mortgage, Arch Capital, AXIS Capital, Boston Scientific, Canadian National Railway, Cavium Networks, Choice Hotels, Emulex, Extreme Networks, Hanger Orthopedic, Health Management, Heartland Financial, Insituform Technologies, IPC The Hospitalist, Jacobs, Masco, Mindspeed, Nara Bancorp, Olin, Omnicell, Owens & Minor, Plum Creek, PLX Technology, PPD, Reinsurance Group of America, Rent-A-Center, Sanmina-SCI, SL Green Realty, SolarWinds, SonoSite, Texas Instruments, Ultra Clean Holdings, Universal Health, VCA Antech, Veeco Instruments, Volterra Semiconductor, W.R. Berkley and WMS Industries.
There are no significant economic reports due today.
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