Stocks rose again on Friday, capping the best week for the Dow Jones Industrial Average in almost a year. The Dow gained 5.3% for the week, following the worst week of 2010 and a quarter that most investors would just as soon forget with the Dow off 10%, the S&P 500 down 12%, and the Nasdaq off 13%.

Like Thursday, the last half-hour of trading on Friday accounted for most of the gains. But unlike Thursday when stocks were driven by upbeat data on jobs and better retail sales, on Friday there was little news to account for the gains. So some commentators attributed Friday’s advance to upside momentum following three prior days of buying, plus the anticipation of better Q2 earnings. Those earnings reports will begin today with the traditional announcement from Alcoa after the close.

Q2 profits are expected to increase by 27% over last year, according to Thomson Reuters. And the S&P 500 is expected to have a 9% revenue growth.

The Bank of Korea surprised bankers by raising its benchmark rate 25 basis points to 2.25%. That was taken by some as an indication that global markets are recovering. And the hike had impact on the U.S. financial sector, which rose 1.6%. JPMorgan Chase & Co. (NYSE: JPM) gained 1.81%, Bank of America Corporation (NYSE: BAC) rose 1.68%, and Citigroup Inc. (NYSE: C) gained 1.7%.

At the close, the Dow Jones Industrial Average was up 59 points to 10,198, the S&P 500 rose 8 points to 1,078, and the Nasdaq was up 21 at 2,196. 

The NYSE traded 882 million shares, and the Nasdaq exchanged 467 million shares. Both exchanges registered the lowest volume of the year, and both had advancers ahead of decliners by more than 3-to-1.

Crude oil for August delivery rose 56 cents to $76.09, and the Energy Select Sector SPDR (NYSE: XLE) closed at $52.62, up 27 cents. 

August gold gained $13.70 to settle at $1,209.80 an ounce. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at $175.09, up $4.21.

What the Markets Are Saying

Last week’s surge of 5% for the Dow in just four sessions will no doubt test the bears’ conviction that the trend is down. But the pattern of high volatility and high volume on down days and low volume on up days is consistent with a downtrend. And, as pointed out in prior Daily Market Outlooks, a rebound following a major breakdown is not unusual. All of our indicators point to a bear that is just beginning to prowl.

But last week’s rally, while having no effect on the medium- and long-term market trends, did turn the near-term trend up. As S&P’s Mark Arbeter said on Friday, “At times, predicting the stock market can be very frustrating.” But our readers will remember that I cautioned to wait for a rally before either selling the dogs that remain or entering new shorts, since following the decline our internal indicators were grossly oversold and primed for a rally.

How high can the market go before running into resistance? Some technicians are picking the June peak of 1,130 as a possible high, but that is a most unlikely number since there is resistance before that at 61.8% of the retracement of the June “flash crash” at 1,085, the 50-day moving average at 1,097, and the declining trendline that is currently at 1,106. And above that is the overhanging 200-day moving average at 1,112.

The current rally could continue for several more days and, like the markets of June, may be excessively impacted by news from the earnings front. But unless the overwhelming resistance (which is now just above current price levels) is violated, the long and intermediate trends of stocks are down.

Today’s Trading Landscape

Earnings to be reported before the opening include: Shaw Group.

Earnings to be reported after the close include: Alcoa, CSX and Novellus.

There are no significant economic reports due today.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.

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