Following a tentative opening with modest losses, the major stock indices broke into positive territory Tuesday, and held onto a small gain through the close.
The opening was lower due to disappointing revenues from Alcoa (AA), the first Dow component to report Q1 earnings. But Home Depot (HD), up 2.6%, helped to offset the decline in AA, and the key index held above 11,000 for a second day.
Regional banks were weak following a downgrade by UBS of KeyCorp (KEY), Huntington Bancshares (HBAN) and Regions Financial (RF). Dow component JPMorgan Chase (JPM) closed lower ahead of earnings to be reported this morning.
Offsetting the bank decline was a rally in consumer stocks, which was a reaction to lower energy costs as oil fell for the fifth consecutive day.
Intel (INTC) rose 1.02% as investors anticipated better-than-expected earnings to be reported after the close yesterday. And they weren’t disappointed when the big chip maker said that Q1 revenues jumped 44% and profits jumped to 43 cents a share versus analysts’ estimates of 36 cents.
So despite the many worries over earnings, China, Greece, and you name it, the Dow Jones Industrial Average (DJI) rose 13 points, closing at 11,019, the S&P 500 (SPX) gained 1 point at 1,197, and the Nasdaq (NASD) was up 8 points to 2,466.
Volume on the NYSE rose slightly to over 1 billion shares, and the Nasdaq traded 641 million shares. Advancers led decliners by a slight margin on both exchanges.
Crude oil for May delivery fell for the fifth straight day, losing 29 cents and closing at $84.05 a barrel on continued worries that there is an increase of supply over demand. The Energy Select Sector SPDR (XLE) dropped 21 cents to $59.76 as it fell from $60 for the third time since last October. Initial support for the XLE is at the 50-day moving average at $57.20.
June Gold fell $8.80 to $1,153.40 an ounce on profit-taking. The PHLX Gold/Silver Sector Index (XAU) fell 1.25 points to 173.71. The next major support for the XAU is at the conjunction of the 50- and 200-day moving averages at around $165. During the last 10 minutes of trading, volume buying almost reversed Monday’s lower close, and a higher close today could result in a resumption of the uptrend, which currently has a bull channel resistance line at $180.
What the Markets Are Saying
Yesterday, stocks fought off the initial selling generated from a lousy earnings number from Alcoa and again headed north, albeit at a slow, slow pace. And no the techs will get a push today from the positive earnings surprise from Intel.
One result of the slow, and then slower, advance, is that our internal indicators have fallen from “extremely overbought” in late March to just “overbought” now. In other words, earnings are catching up with prices, so stocks will most likely continue to plod higher as long as the high expectations for Q1 earnings continue to be met.
In a market of higher prices day after day, you should always try to play the mainstream of the market. As Dorsey Wright & Associates says, “The main trend of a stock is when the stock is above its bullish support line and the relative strength chart is bullish.” In other words, only buy stocks in an uptrend; don’t fight the market.
As our own Josh Levine, editor of ChangeWave Investing, says, “My interest has nothing to do with being ‘right’ — just with being on the ‘right side’ of the stock market and its momentum!”
Well, Josh, momentum is again with the bulls, so we will continue being long — but nervous.
Today’s Trading Landscape
Earnings to be reported before the opening include: iGate, JPMorgan Chase, Medtox Scientific, Progressive and WW Grainger.
Earnings to be reported after the close: JB Hunt Transportation Services, Landstar System and YUM Brands.
Economic reports due: MBA purchase applications, consumer price index (the consensus expects 0.1%), retail sales (the consensus expects 1.2% and 0.5% ex-autos), business inventories (the consensus expects 0.5%), EIA petroleum status report and Beige Book.
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