Strong earnings and revenues from a broad-based list of companies and better results from European economic reports drove stocks higher on Thursday. The gains not only erased Wednesday’s losses, but the major indices rose close to several important technical barriers as investors anticipated better earnings from Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) to be reported after the close.
Even U.S. existing home sales beat estimates, and the leading indicators were also higher than expected. The better economic numbers had a positive impact on commodity futures, and the CRB Commodity Index rose 2% with energy the leader, up 3.3%.
Blue chips like Caterpillar (NYSE: CAT), United Parcel Service (NYSE: UPS) and 3M (NYSE: MMM) posted better-than-expected earnings and revenues. American Express (NYSE: AXP) gained 5% and Microsoft rose 2.9%. After the close, Mr. Softie announced quarterly earnings of $0.51 vs. $0.46 expected, and AXP reported $0.84 vs. $0.78 expected, but both stocks fell in the aftermarket trading. Amazon.com was expected to earn $0.54 but reported just $0.45 missing both earnings and revenue numbers and was down over 15% in the aftermarket.
Big earnings gains were posted by Union Pacific (NYSE: UNP), up 4.75%, and UPS, which gained 5.23%, both during the regular trading hours. A number of regional banks did well: SunTrust (NYSE: STI), Fifth Third (NASDAQ: FITB), KeyCorp (NYSE: KEY), PNC Bank (NYSE: PNC) and Huntington Banc (NASDAQ: HBAN) all beat estimates. But BB&T Corp (NYSE: BBT) missed its earnings estimate by 4 cents.
The U.S. dollar fell 1% vs. a basket of other currencies.
At the close the Dow Jones Industrial Average gained 202 points to 10,322, the S&P 500 rose 24 points, closing at 1,094, and Nasdaq gained 59 to end at 2,246. The NYSE exchanged under 1.2 billion shares with advancers ahead of decliners by just under 6-to-1. Nasdaq traded 656 million shares with advancers ahead by 5-to-1.
Crude oil for September delivery rose $2.74 to $79.30 a barrel as a new tropical depression headed for the Gulf of Mexico. The Amex Energy SPDR (NYSE: XLE) gained $1.16, closing at $53.54. August gold rose $7.10 to $1,198.90 an ounce, and the PHLX Gold/Silver Index (XAU) closed at $172.34, up $3.65.
What the Markets Are Saying
Despite yesterday’s broad advance, which resulted from better-than-expected earnings for about 60% of stocks that have so far reported, the most-followed indices stopped short of penetrating their major resistance lines. While the Dow Industrials managed to close above its 50-day moving average for the second day in a row, it failed to reach the 200-day moving average and closed just below the bearish resistance line at 10,325. The pattern is similar for the S&P 500 and Nasdaq. The “500” closed on its resistance line but short of the 200-day, while Nasdaq fell shy of both but closed above its 50-day.
The indices are now at a crucial pivot point. Are the bulls powerful enough to turn the tide and break the considerable overhead? Or, with some of the most powerful companies having reported earnings and the bears still holding their ground, will they be able to pounce and drive the S&P 500 down and through the neckline of the partially completed head-and-shoulders pattern?
Yesterday’s rally has turned the chart patterns ever so slightly in favor of the bulls by changing the near-term trend to sideways (neutral), while the intermediate trend is still down along with the long-term trend. Our internal indicators, chiefly MACD, stochastic, momentum and RSI, are overbought and thus bearish. But the sentiment indicators have turned neutral. Yesterday’s good news, chiefly Q2 earnings and revenues, and a positive economic report from Europe were treated positively by the TV press and investors, and the negative news of Wednesday (Bernanke’s congressional appearance) was for the moment forgotten. That is a positive for the bulls. Volume at just over 1.1 billion shares on the NYSE on a day when the Dow gained over 200 points does not support the bullish case.
Conclusion: Despite some indications of strength, the overall trend is down and so the bears are still in charge. Investors should maintain their cautious stance, and traders may find the current price levels ideal for short selling and other defensive strategies.
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