Editor’s note: OptionsZone editor Jim Woods will be filling in for Sam Collins today.
Yesterday stocks started off with a positive opening that quickly developed into a continuation of Wednesday’s sell-off. But solid earnings gains from some of the regional banks turned the tide to a rush of buying. By the closing bell, the losses incurred in Wednesday’s final hour were almost completely erased.
Among the regional banks PNC Financial Services Group (PNC), SunTrust (STI) and Fifth Third Bancorp (FITB) scored with better-than-expected earnings. And in the first 15 minutes of trading, the regional banks were up more than 4%. Then at 10 a.m., the leading indicators for September showed an increase of 1%, which was 0.8% better than expected, and we saw a rush of buying. At the close, PNC had a gain of almost 13%.
For the remainder of the day, blue chips shined, with earnings from Dow components Travelers Companies (TRV), McDonald’s (MCD), 3M (MMM) and AT&T (T) all posting better-than-expected earnings. Travelers led the select group with a gain of almost 8%, but the broad market was really led by financial stocks, with the sector ending 2.9% higher.
Earnings gains from J. Crew Group (JCG) drove retailers to a gain of 1.7%. And Freeport-McMoRan (FCX), which was upgraded by a key analyst, and Dow Chemical (DOW), which posted better-than-expected earnings, helped drive the materials group to a 1.4% gain.
Earnings seemed to be on buyers’ minds yesterday, and they appeared to ignore negative economic news like the latest weekly jobless claims, which came in at 531,000 instead of the expected 515,000, and continuing claims, which missed the mark as well. Even a fall in home prices for August by 0.3% versus an expected gain of 0.3% didn’t faze the buyers.
And at the close, the Dow Jones Industrial Average (DJI) was up 132 points to 10,081. The S&P 500 (SPX) gained 12 points to 1,093, and the Nasdaq (NASD) rose 15 points to 2,165.
The NYSE traded 1.3 billion shares with advancers ahead by more than 2-to-1. On the Nasdaq, 744 million shares were exchanged with advancers ahead by 5-to-3.
December crude oil fell 18 cents to $81.19 a barrel, and the Energy Select Sector SPDR (XLE) rose 23 cents to $59.45.
December Gold fell $5.90 to $1,058.60 an ounce on gains in the U.S. dollar. The PHLX Gold/Silver Index (XAU) fell 22 cents to $174.12.
What the Markets Are Saying
The remarkable thing about this week is that the market has been relatively unremarkable despite some terrific earnings.
After a powerful rally beginning on Oct. 2, which took the S&P 500 from 1,020 to 1,094 in just eight sessions, trading went relatively flat as each day’s high bumped into the bull channel’s resistance line while still making new intraday highs. And while the indices were having a tough time breaking through that upper line, companies were pounding the analysts’ Q3 earnings numbers, resulting in 85% of the S&P’s stocks exceeding forecasts.
With so many companies exceeding forecasts, why hasn’t the market broken into a violent buying spree with dramatic new highs?
There could be many reasons, but two stand out.
First, it has already. The Oct. 2-14 rally from S&P 1,020 to 1,101 was built on an anticipation of better Q3 reports and jumped off of two important technical lines — the bull channel’s support line and the 50-day moving average.
Second, at the Oct. 2nd support point, the Relative Strength Index (RSI) was at a sold-out reading of 44.28, having fallen from over 72 in just 13 trading sessions. In other words, a sold-out market under a condition of better earnings forecasts drove stocks higher for a classic case of “Buy the rumor, sell the news.”
While stocks were hitting the top of the bull channel, the RSI has been declining for six days, and is now at 61.61. That’s not cheap, but it’s better than the 68 reading of just six days ago.
We may get a continuation of yesterday’s rally, especially following the impact of the after-the-bell earnings knockout by Amazon.com (AMZN) yesterday (45 cents versus a 33-cents estimate).
And with Microsoft (MSFT), Honeywell (HON) and a host of other big names reporting today, another failure to poke through the S&P’s resistance at 1,105, or even the psychologically important 1,100, could turn prices back to the next support at the conjunction of the 50-day moving average and the bullish support line at 1,050.
Today’s Trading Landscape
Earnings to be reported include: AVX Corp., Cache, Chartered Semiconductor Manufacturing Ltd., Columbus McKinnon Corp., Donegal Group, Dover Corp., Fortune Brands, Green Bankshares, Idexx Laboratories, Ingersoll-Rand PLC, Invesco Ltd., KT Corp., L.B. Foster Co., Metalico, Microsoft, Pinnacle West Capital Corp., Power Integrations, Saia, Shaw Communications, T. Rowe Price Group, United Community Banks, Volvo AB and Wilmington Trust Corp.
Economic report due: existing home sales (the consensus expects 5.35 million).
Late news: Honeywell reported Q3 EPS of 76 cents versus an estimated 72 cents. Schlumberger (SLB) reported 65 cents versus a 63-cent estimate. Whirlpool (WHR) reported 87 cents versus a 77-cent estimate.
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