Despite some mixed earnings reports and a sluggish financial sector, stocks made a late surge yesterday and chalked up gains for the fourth-straight session.
The late run was attributed to a comment made by NYU economics professor Nouriel Roubini, who said that the recession is in its late stages. The comments from Dr. Roubini, known as “Dr. Doom,” may have sparked the late rally. But, following the close, the doctor reclaimed his title by saying that his comments were simply consistent with his earlier forecast, according to the Wall Street Journal.
JPMorgan Chase (JPM) was under pressure for most of the session following better-than-expected earnings, and closed lower by 0.36%.
Nokia (NOK) met earnings forecasts but is losing market share, and the stock fell 14.6%. But IBM (IBM) and Google (GOOG) had gains in anticipation of earnings reported after the close. Both exceeded analysts’ forecasts.
Initial jobless claims for the week ended July 11 came in at 522,000, which is the lowest since January. And continuing claims fell from a record 6.9 million to less than 6.3 million, which is the lowest since April.
At the close, the Dow Jones Industrial Average (DJI) was up 96 points to 8,712, the S&P 500 (SPX) gained 8 points to 941, and the Nasdaq (NASD) rose to 1,885, up 22 points.
The NYSE traded 1.18 billion shares with advancers ahead by more than 2-to-1, and the Nasdaq traded 701 million shares with advancers ahead by about 5-to-3.
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What the Markets Are Saying
The head-and-shoulders formation is one of the most reliable signals in the technician’s book of tricks — most claim more than 80% accuracy. And the recently negated one was picture-perfect, conforming to almost every point in the manual — and perhaps that was the problem.
The pattern was so widely discussed and accepted by virtually every financial commentator and analyst that I’m sure the words “The stock market is designed to confound the most number of people most of the time” are still ringing in the ears of many CNBC and FOX Business followers.
But “what is, is.” And that puts our analysis on hold until the current pattern is resolved.
And the current pattern looks like this:
- Wednesday’s dramatic advance ploughed through the Dow’s and the S&P 500’s 20- and 50-day moving averages, as well as the bearish channel drawn from the June high.
- This pop was followed by a run of another 95 points on the S&P on Thursday, which extends the gains close to the significant breakout level of 945 to 950 and the 210-day exponential moving average at 943.
- A strong breakout above this level — 3% or more — would more than likely result in a new leg up and targets the 1,200 area as the next major resistance zone.
Unlike the S&P 500, the Nasdaq has broken from a double-top with the prior high on June 11 at 1,880. But despite Thursday’s “breakout,” the new trend is not confirmed until the advance reaches 3% of the level of the break, which is 1,936.
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This is the criterion that is followed for most major technical breaks, and the one that was not quite met on the head-and-shoulders break, which fell about 2.5%. If the break is confirmed, then the target for the new trend is 2,300.
Today’s Trading Landscape
Earnings to be reported include: A.O. Smith Corp., Acme United, Bemis Co., Citigroup, First Niagara Financial Group, Marshall & Ilsley, Prosperity Bancshares, Student Loan, Votorantim Celulose e Papel S.A. and Webster Financial Corp.
Economic report due: June housing starts (the consensus expects +1.5%).
Late news: General Electric (GE) reported Q2 earnings per share of 26 cents versus an estimated 23 cents. Mattel (MAT) reported Q2 EPS of 6 cents versus an estimate of 0. First Horizon (FHN) reported a Q2 loss of 58 cents versus an estimated loss of 10 cents. Bank of America (BAC) reported Q2 EPS of 33 cents versus an estimated 26 cents. BB&T Corp. (BBT) reported Q2 EPS of 20 cents versus an estimated 21 cents.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of his most recent market outlooks.
