A smaller-than-expected increase in initial jobless claims and a buy recommendation on General Electric (GE) from analysts at Goldman Sachs led to a surge of buying at yesterday’s opening bell on the NYSE. GE opened over 6% higher and led the Dow to a hold over a 150-point gain for most of the day.
Earnings surprises from a number of stocks kept the buyers coming despite warnings from analysts that the market was due for a pullback. All 10 of the S&P 500’s sector showed gains and Nasdaq briefly penetrated 2,000 for the first time since last October.
Dow Chemical (DOW), Noble (NBL), Apache (APA), Hartford (HIG), Lincoln National (LNC), Aflac (AFL), Visa (V), and MasterCard (MA) all contributed to earnings gains.
And Motorola (MOT) surprised analysts by reporting a $26-million profit instead of a loss.
Profit taking in the last hour of trading pared a good portion of the early gains, but the Dow Jones Industrial Average still gained 84 points, closing at 9,154. The S&P 500 rose 12 to 987, and Nasdaq gained 17, closing at 1,984.
The NYSE traded 1.4 billion shares with advancers ahead of decliners by 4-to-1. Nasdaq traded 774 million shares with advancers there ahead by more than 2-to-1.
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Crude Oil (September contract) gained $3.59 to close at $66.94 a barrel, rallying more than 5% — the biggest gain in three months.
The Amex Energy SPDR (XLE) gained 69 cents, closing at $50.13. And along with the gain in oil, Gold for August delivery rose $7.70 to end at $934.90 an ounce. The PHLX Gold/Silver Index (XAU) closed at $142.97, up $4.00.
What the Markets Are Saying
July saw an explosion of buying in which Nasdaq put together a string of 12 winning days, advancing in 15 of the last 17 (through Thursday) and for the first time since October broke above 2,000. Thus, it may time for the markets to take a break. For July the Dow is +38%, the S&P 500 is +7.33%, Nasdaq is +8.13%, and the Russell is +9.74%.
Yesterday’s turning aside by Nasdaq from 2,000 and the S&P 500’s inability to hit its big number at 1,000, along with some pretty hefty profit taking at the close, could be the signal that a brief consolidation is about to occur.
Supporting the thought of a pullback is Wednesday’s AAII Sentiment Survey, which has the bulls at 47.67% and the bears at 31.40%. Recent data from our other sentiment numbers are equally bullish, which is bearish, and so I’d refrain from chasing stocks for a few days and just let things settle down. If we do get a consolidation, look for the Dow to stabilize at around 9,000, the S&P at 950, and Nasdaq at 1,950.
But the trend is definitely up and so here are the upside targets for each of the indices: DJIA, initial target is 9,650 (high of November 5, 2008) with a minimum longer-range target of 11,313, which is 28% higher than the breakout. S&P 500’s initial target is 1,006 to 1,010 and then 1,245, which is 30% higher than the breakout from 956. Finally Nasdaq, which presents a bit of a paradox since it has already achieved its initial target which was the gap at 1,905 to 1,947 of last October. The minimum longer-term target is 2,300, which is 22% above its breakout of 1,880.
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Today’s Trading Landscape
Earnings to be reported include: Advanced Semiconductor Engineering, Allergan, Amerigroup Corp, Anglogold Ashanti Ltd, Apartment Investment & Management, AutoNation, Belo, Brush Engineered Materials, Calpine Corp, Capital Product Partners LP, Central Pacific Financial Corp, Chevron, CNA Surety, Constellation Energy Group, Cypress Sharpridge Investments, Digimarc Corp, Dominion Resources, DryShips, Eldorado Gold Corp, Entertainment Distribution Co, Fujifilm Holdings Corp, Graham, Harte-Hanks, HMS Holdings Corp, Inspire Pharmaceuticals, Interline Brands, iStar Financial, ITT Corp, Johnson Outdoors, Kaydon, Lafarge North America, Magellan Health Services, Mahanagar Telephone Nigam Ltd, Makita Corp, MDC Holdings, Mitsubishi UFJ Financial Group, Monotype Imaging Holdings, Nicor, NorthStar Realty Finance Corp, NV Energy, OneBeacon Insurance Group, Parker Drilling, PNM Resources, PSEG, Rentokil Initial plc, Ruth’s Hospitality Group, Sempra Energy, Sirona Dental Systems, Snap-on, Stoneridge, The Washington Post Co, Titan Int’l, Total, United Therapeutics, Vectren Corp, and Weyerhaeuser Co.
Economic reports due: Real GDP (the consensus expects -0.7%), Chicago PMI (the consensus expects 44.0), and Employment Cost Index (the consensus expects 0.3%).
Late News: Q2 earnings vs. estimated, MetLife (MET) $0.88 vs. $0.68, Disney (DIS) $0.52 vs. $0.50, AutoNation (AN) $0.29 vs. $0.24.
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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.
