Market Too Murky to Predict

Big-cap stocks were pulled higher Friday by news that General Electric Company (NYSE:GE) planned to dispose of most of its lending operations. However, volume and breadth were not acceptable to many analysts, and individual sessions have been marked by high volatility with little upward progress.

GE rallied 10.8% after the conglomerate said it plans to sell $26.5 billion worth of office buildings and real estate debt to Blackstone Group LP (NYSE:BX), Wells Fargo & Co (NYSE:WFC) and others.

But analysts expect a decline in Q1 earnings of about 4.8%, according to FactSet. If that was to occur, it would result in the worst drop in quarterly earnings since 2009.

However, some sectors appear impervious to lower earnings. Health care companies, for example, continue to be the focus of upward earnings revisions. According to The Wall Street Journal, shares of health care companies in the S&P 500 are up 8% this year, and in the past year, they have gained more than 31%. Analysts expect them to continue to deliver above-average performance with more M&A activity.

Oil prices rose on Friday, capping the fourth consecutive week of gains. WTI oil for May delivery was up 1.7% to $51.64 a barrel. Brent crude rose 2.3% Friday to $57.87 barrel and was up 5.3% for the week.

The benchmark 10-year Treasury note’s yield fell to 1.95%, down from 1.96% on Thursday, as bond prices rose. Gold for June delivery was up 0.9% to $1,204.60 an ounce.

At Friday’s close, the Dow Jones Industrial Average rose 99 points to 18,058, the S&P 500 gained 11 points at 2,102, the Nasdaq was up 21 points at 4,996, and the Russell 2000 gained 6 points at 1,265.

The NYSE’s primary market traded a mere 671 million shares with total volume of 3 billion. The Nasdaq crossed 1.5 billion shares. Advancers led decliners on both exchanges by about 1.5-to-1.

For the week, the Dow rose 1.6%, the S&P 500 gained 1.7%, the Nasdaq jumped 2.3%, and the Russell 2000 gained 0.7%.

Russell 2000 Chart
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Chart Key

One analyst called the recent formation of tight advances in the Russell 2000 a “coiled spring” with the implication that prices will break the old high of 1,268. Yet, an identical formation occurred in late February at the support line at 1,245, and prices broke down to the index’s 50-day moving average. This is a good example of the danger of anticipating a breakout and paying the price when it doesn’t occur.

Nasdaq Chart
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On the other side of the argument, the bears see a head-and-shoulders developing on the chart of the Nasdaq. However, in late November to late January, the same formation appeared to be developing only for the neckline to hold, and the Nasdaq rallied to a new 15-year high.


With so many imponderables, which I’ve discussed many times in past Daily Market Outlooks, and with volume low and breadth not fitting a clear pattern, it is technically not possible to predict which way stocks will break.

The AAII Sentiment Survey showed that the biggest change in the week ending April 9 was in the “neutral” category. This camp rose from 32.65% to 47.15% — the biggest jump in more than a year.

The overall trend is up, so we will give a slight edge to the bulls.

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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