The Market Keeps Chasing the Bears Back Into the Cave

On Thursday, stocks opened higher on news that unemployment benefits fell to the lowest levels since February 2006. In addition, better-than-expected economic data was reported from both Europe and China.

But later in the day, stocks took back all of the gains on news that new-home sales fell 8.1% in June, and that the May reading was being revised lower.

Despite better earnings from many companies and analysts’ predictions of higher 2014 earnings, stocks did not respond to the better reports and flat-lined yesterday afternoon. According to FactSet, S&P 500 companies now expect a gain of 5.6% vs. 4.9% previously.

Earnings were reported by the following companies: Facebook (FB) jumped 5.2% after beating revenue and earnings expectations; Under Armour (UA) jumped 15% after better earnings and revenue forecasts and raised its outlook for the year; Caterpillar (CAT) fell 3.1% after failing to meet revenues; and Ford (F) rose 0.3% after it beat earnings expectations. Qualcomm (QCOM) fell 6.7% after the company expressed worries about licenses in China.

At the close, the Dow Jones Industrial Average fell three points to 17,084, the S&P 500 rose one point and set another new record high at 1,988, and the Nasdaq Composite fell two points to 4,472. The Russell 2000 fell 2, closing at 1,156. Volume continued to be light with the NYSE trading total volume of 3.2 billion shares and Nasdaq crossing 1.9 billion. On both major exchanges decliners outpaced advancers by 1.2-to-1.

nyse support
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Chart Key

This week, we’ve looked at almost all of the major indices except the NYSE Composite. This index, for new readers, is one of my favorites because it is composed of all stocks traded on the New York Stock Exchange — thus, it provides a cross-section of American industry, goods and services.

Note that the index has kept within a broad bullish band since May and June 2013 and had just one correction in February, which was quickly reversed. Currently, the NYSE has found support at 10,880, just above its 50-day moving average at 10,877, and yesterday’s close even exceeded its 20-day moving average at 10,994.

I’ve introduced a 100-day moving average (green line) because some technicians find it helpful, but in this chart the current price is well above the line at 10,687. MACD is moving quickly to the bull zone, and if today the index closes higher, MACD probably will issue a buy signal.


Jeff Saut points out that “The S&P 500 has now gone 1,022 days without a 10% drop, which makes the third longest such stretch in the past 25 years.” I suppose Jeff is expecting a dip sometime this summer, but thus far the market has not been accommodating any ideas of a correction.

There is no need to itemize the litany of bad news that stocks have ignored. There are so many negatives that you just have to be positive. Taking a look at the NYSE Composite chart as it inches toward another new high, moving away from support at its 20-, 50- and 100-day moving averages is enough to make a bear go into further hibernation.

And our sentiment indicators are bullish as well. The AAII bullish number fell for the fourth consecutive week. This week the bullish number is 29.63%, down from 32.36%, 37.64% and 38.51%. And with the S&P price-to-earnings ratio at 16.6 against estimated 2014 earnings and 14.4 on estimated 2015 earnings, it seems the only thing we have to fear is fear itself.

We continue to be buyers of stocks with solid fundamental and technical patterns.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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