It’s Time to Be Sector-Selective

On Monday stocks edged higher in sluggish trading pushed along by better-than-expected earnings. The Nasdaq rose to its third consecutive new high despite a selloff in commodities that hit many mining stocks on its list. The Dow Jones Industrial Average and the S&P 500 each rose fractionally.

Hasbro (HAS) led the Dow Industrials, gaining 6.26% on better-than-expected earnings that beat its rival Mattel (MAT). And Halliburton (HAL) jumped 1.8%, again on earnings that beat expectations. In the financial sector, Morgan Stanley (MS) beat earnings forecasts but fell 0.4%.

The technology sector led throughout the day with gains posted by Apple (AAPL), Facebook (FB) and Visa (V). But Google (GOOG, GOOGL) fell 1.0%. IBM rose 0.4% prior to its earnings report, which was published after the close and appears to be a disappointment.

Gold fell again and the SPDR Metals & Mining ETF (XME) reflected that fall, losing 2.4%. Newmont Mining (NEM) fell 12%. Gold bullion lost 2.2%, closing at $1,106.70 per ounce. September silver contracts lost 1.3% to close at 14.78 per ounce.

After three weeks of barred doors, Greek banks finally opened, but the Athens Stock Exchange remained closed. In Germany the DAX rose 0.5%, and in France the CAC-40 rose 0.4%. The U.S. Treasury note rose to 2.373%, up from 2.349% on Friday.

At the close, the Dow Jones Industrial Average gained 14 points at 18,100, the S&P 500 rose 2 points, closing at 2,128, Nasdaq closed at 5,219, up 9, and the Russell 2000 fell 7 points to close at 1,260. The NYSE traded total volume of 3.3 billion shares, and the Nasdaq crossed 1.8 billion shares. On the Big Board decliners outpaced advancers by 2.1-to-1, and on the Nasdaq decliners led by 2.2-to-1.

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Chart Key

The Dow transports are still struggling, but at least the index is now attempting to reverse the channel down that has plagued it since April. Yesterday it fell back from the resistance line and 50-day moving average at 8,374. The transports have lots of resistance ahead even if successful in overcoming near-term sellers. The major barrier looms ahead at its 200-day moving average at 8,717 and a thick band of potential sellers at a midpoint of about 9,000. MACD is now overbought.

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The Dow Jones Industrial Average is technically in much better shape that its cousin, the Dow Jones Transportation Average. The industrials have successfully pierced the 50-day moving average at 17,985 and hover just above the resistance line of a channel down. But to reverse the consolidation that began in December, the industrials must drive to a new high, surpassing the high at 18,351 achieved in May. But first they must pop above the heart of overhead at 18,200.


The Dow indices are mired in resistance zones that began in December 2014. The industrials appear in better condition to overcome selling than the transports, but Dow Theory requires that both indices reverse if they are to confirm that a bull market is still in place.

But the Dow indices don’t solely define the stock market trend, and the S&P 500, discussed last Friday, is a much broader index than either Dow index. It is in a bull channel that began last December and is making incremental gains against the top of its range. The Nasdaq is in a defined bull channel and, as described, made its third consecutive new high yesterday with a fresh MACD Buy signal supporting the move up.

Rather than generalize, it is time to treat each sector separately: Stay away from the Dow stocks and most internationals, except medical and pharmaceuticals, and focus on the technology sector, financials and biotechs for near-term gains. This is what we call a “market of stocks and not a stock market” meaning that in the slow, summer doldrums, some individual stocks will outperform while the big blue-chips languish.

This week about 25% of Q2 earnings will be reported, taking the focus away from other non-market distractions. And better-than-expected earnings will be rewarded.

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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