On Monday, despite a range bound start, technology and financial stocks gained and pushed the major indices to new highs. This marks the seventh consecutive gain for the Dow Jones Industrial Average.
The narrow band of trading was attributed to lower crude oil prices, a lower dollar, as well as concern over some major earnings reports later in the week. Volume was the third lowest of the year with just 3 billion shares trading vs. an average of 7.6 billion.
ARM Holdings plc (ADR) (NASDAQ:ARMH) rose $19.09 after agreeing to be acquired by SoftBank (OTCMKTS:SFTBF), a Japanese firm, and that helped the technology sector gain 0.7%. Apple Inc. (NASDAQ:AAPL) — one of ARM’s customers — gained 1.1%, and that alone moved the Dow up 7 points. Also in the technology sector: Facebook Inc (NASDAQ:FB) rose 2.2% and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) gained 1.9%.
The financial sector, up 0.4%, benefitted from better-than-expected earnings from Bank of America Corp (NYSE:BAC), which gained 3.3%. Goldman Sachs Group Inc (NYSE:GS) reports today and Morgan Stanley (NYSE:MS) on Wednesday.
The dollar fell slightly vs. a basket of currencies but the Turkish Lira fell almost 5% vs. the buck.
Crude oil (August) fell 1.5% to $45.24/bbl. due to a glut of fuel in storage tanks. Much of the decline is due to lagging demand by China whose June imports hit the lowest in five months. Gasoline futures lost 2.4% at $1.3872/gal.
At the close the Dow Jones Industrial Average gained 17 points at 18,533, the S&P 500 rose 5 points at 2,167, the Nasdaq closed at 5,056, up 26, and the Russell 2000 gained 3 points at 1,208. The New York Stock Exchange’s primary exchange traded 741 million shares with total volume of 3 billion shares, while the Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 1.7-to-1, and on the Nasdaq, advancers led by 1.3-to-1. Block trades fell to 5,011 vs. 5,202 on Friday.
Regular readers are familiar with my occasional study of the NYSE Composite Index. The NYSE Composite is an average of all stocks traded on the New York Stock Exchange, and thus is a good indicator of other sectors and their future performance.
Here we see the breakout through the important resistance (now support) line at 10,600. By subtracting the lows of January/February at about 8,930 from the resistance line at 10,600, the product is 1,670, and adding that to 10,600 results in an eventual approximate target of 12,270.
Conclusion
The target for the Composite is 13%-plus above yesterday’s close. And so the big picture indicates that the secular bull market has room to advance. There will be strong volatility, and no one should “sell the farm” to buy stocks “at the market.” But the chart tells us that we should buy into weakness and, as traders, be more reluctant to sell into strength, unless price-to-earnings ratios get out of whack.
What is “out of whack?” Currently the S&P 500 is at a 12-month forward earnings ratio of 18.4. In my opinion, a reading above 20 would be too expensive — but that’s still a long way away.
For the remainder of the week I’ll focus on each of the major indices with targets for each.
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.
