Stocks opened higher yesterday following a Wall Street Journal report that CIT Group (CIT) had reached a $3 billion rescue agreement with bondholders that could save the company from bankruptcy. The buying continued, spurred on by upside earnings surprises from major large-cap companies.
Earnings from Halliburton (HAL), Hasbro (HAS), Johnson Controls (JCI) and Eaton (ETN) were announced prior to the opening and each company beat analysts’ estimates.
Even companies that have yet to report earnings had big gains in anticipation of upcoming reports. Yahoo (YHOO), Coca-Cola (KO) and Apple (AAPL) were all higher prior to earnings reports to be issued today.
The Dow Jones Industrial Average (DJI) was helped by a gain in Caterpillar (CAT), up 7.8%, which will also report earnings today, and which was upgraded to a “buy” rating by Bank of America (BAC).
And even though the economic calendar was light, the one and only report was strong. The June leading indicator came in at +0.7% versus an expected +0.5%. The was the third successive increase for the indicator, and following the report at 10 a.m., the market made steady progress until a final surge of buying at the close.
At the close, the Dow was up 104 points to 8,848, the S&P 500 (SPX) gained 11 points to 951, and the Nasdaq (NASD) rose 23 points to 1,909.
The NYSE traded 1.1 billion shares with advancers ahead of decliners by more than 3-to-1. The Nasdaq traded 655 million shares, and advancers led by just less than 2-to-1.
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Crude oil for August delivery rose 42 cents to $63.98 a barrel despite warnings from analysts that the fundamentals for the market remain weak. The Energy Select Sector SPDR (XLE) rose 83 cents, closing at $49.28.
Gold (August contract) rose to its highest level in more than five weeks, closing at $948.80, up $11.30. The gain was attributed to a lower U.S. dollar and higher energy prices. The PHLX Gold/Silver Index (XAU) gained $4.95 to $149.31.
What the Markets Are Saying
Yes, we may not like the overbought internal indicators. And we may be reluctant to buy stocks when the Dow and Nasdaq have been up for six straight days and the S&P has been up five of six days, since the market “must” be vulnerable to profit-taking.
Yes, our indicators say that momentum has been weakening since the middle of last week. And, yes, the Dow and the S&P 500 are now at the midpoint of a thin band of resistance that marks the top of the current trading range.
On and on it goes … while the market heads higher.
Leading the charge higher is the Nasdaq. The average that is populated with technology stocks ploughed into new high ground on July 16, after breaking from an orderly channel down, which turned out to be merely a channel correction in a very powerful uptrend.
In just eight days, the Nasdaq reversed from a low in the channel to a breakout and a new high for the year. And the other indices are now tagging along.
So the Nasdaq is the index to watch. It is now entering the target zone of resistance from 1,905 to 1,947, which represents a gap in trading that occurred from Oct. 3-6. These gaps are often filled and then followed by a correction before advancing to the overall target.
But the June 16 breakout and the confirming new high yesterday were the final pieces to the puzzle that were required to confirm that the breakout on June 1 was “the real deal.”
The Nasdaq’s new overall target is 2,300, and the probability of much higher prices for all stocks just took a “giant leap for mankind.”
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Today’s Trading Landscape
Earnings to be reported include: Aaron’s, Advanced Micro Devices, AK Steel Holding Corp., America Movil, S.A. de C.V., Amylin Pharmaceuticals, Apple, Arbitron, Atheros Communications, Autofly, Bank of Florida Corp., Berkshire Hills Bancorp, BJ Services Co., BlackRock, Boston Properties, C.H. Robinson Worldwide, Capital Bank, Charlotte Russe Holding, Continental Airlines, Dr. Reddy’s Laboratories Ltd., DuPont, Elan Corp plc, Equity LifeStyle Properties, First Cash, Flushing Financial Corp., Forest Laboratories, Freeport-McMoRan Copper & Gold, Fulton Financial, Gilead Sciences, Grupo Radio Centro, S.A. de C.V., Hancock Holding Co., Hudson City Bancorp, Hugoton Royalty Trust, Iberiabank, Illumina, Infinera Corp., Jefferies, Journal Communications, Kinetic Concepts, LaBranche & Co., Linear Technology, Lockheed Martin, Manhattan Associates, Marten Transport, Net Servicos de Comunicacao S.A., New Oriental Education & Technology Group, Pactiv, Peabody Energy Corp., Pentair, Pervasive Software, Pharmaceutical Product Development, Pinnacle Financial Partners, Platinum Underwriters Holdings Ltd., Precision Castparts, Pulaski Financial, QLogic, RC2 Corp, Regions Financial Corp., Renasant Corp., Robert Half International, Schering-Plough, Seagate Technology, Sherwin-Williams, SLM Corp., Southwest Airlines, StanCorp Financial Group, Starbucks, State Street Corp., Sterling Bancshares, Stryker, Sunoco Logistics Partners L.P., Supertex, Sybase, TD Ameritrade Holding Corp., Tessco, The McClatchy Co., The South Financial Group, UAL Corp., United Technologies, UnitedHealth Group, Valmont, VF Corp, VIST Financial Corp., Vocus, Washington Trust Bancorp, Waste Connections, Waste Services, Western Union Co. and Yahoo.
Economic reports due: ICSC-Goldman Sachs chain store sales and Redbook.
Late News: Texas Instruments (TXN) reported earnings per share of 20 cents versus an estimated 18 cents. DuPont (DD) reported 61 cents versus an estimated 53 cents. Merck (MRK) reported 83 cents versus an estimated 77 cents. United Tech (UTX) reported $2.05 versus an estimated $1.04. Lexmark (LXK) reported 22 cents versus an estimated 60 cents. Quest Diagnostics (DGX) reported $1 versus an estimated 82 cents. Coca-Cola (KO) reported 92 cents versus an estimated 89 cents. Caterpillar (CAT) reported 72 cents versus an estimated 22 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.
