Stocks began on a down note Friday as an Ebola case in New York City, Chinese growth concerns and lower-than-expected earnings from Amazon.com (AMZN) had investors on edge. But the negative start only lasted an hour, and by the closing bell, the major indices scored another gain. As a result, the S&P 500 and Nasdaq posted their biggest weekly percentage increases in over a year.
The recovery began shortly after an announcement from Dallas that nurse Nina Pham had recovered from Ebola. The health care sector rallied sharply, with the Health Care Select Sector SPDR ETF (XLV) up 1.4%. And the iShares Nasdaq Biotechnology (IBB) gained 1.8%.
Better-than-expected earnings from Microsoft (MSFT) drove shares up 2.5% and helped boost the technology sector. However, not every big tech company is doing well. Amazon shocked investors by reporting its largest quarterly loss in 14 years after writing off $170 million from its Fire smartphone. The stock fell 8.3%.
Semiconductor manufacturing tools maker KLA-Tencor (KLAC) jumped 6.9% after an earnings beat, but the kicker was that the company announced a special dividend of $16.50 and increased its buyback program. The PHLX Semiconductor Index rose 1.1%.
FactSet reported that with 208 companies in the S&P 500 reporting Q3 earnings, the index is on track for 5.6% year-over-year earnings growth. Analysts had expected a gain of about 4.5%.
But across the pond things are not so rosy. The U.K. economy slowed in Q3, expanding at an annualized rate of just 2.8%, down from 3.7% in Q2.
At Friday’s close, the Dow Jones Industrial Average gained 128 points at 16,805, the S&P 500 rose 14 points to 1,965, the Nasdaq jumped 31 points to 4,483, and the Russell 2000 gained 2 points at 1,119.
The NYSE’s primary market traded 717 million shares with total volume of just over 3 billion. The Nasdaq crossed 1.7 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq, advancers were ahead by 1.3-to-1.
For the week, the Dow rose 2.6%, the S&P 500 gained 4.1%, the Nasdaq was up 5.3%, and the Russell 2000 added 3.4%.
The NYSE Composite consists of all stocks traded on the NYSE and therefore represents a broad range of industries and services. It has been a solid indicator of future market action. It shows the depth of a trending market better than more selective indices. And unlike the S&P 500 and Dow, its price action is not influenced by the net worth of its stocks, but purely price.
Stocks in the index appear to be struggling. While the S&P 500 and Nasdaq had a strong week, the NYSE Composite made some headway but ran into a band of resistance with a high of 10,880 and a low (support) at 10,558.
Unlike other indices, it has not yet penetrated its 200-day moving average at 10,623, and it also must overcome its 50-day moving average at 10,751. Even though MACD is now bullish, price is the most important guideline, and the NYSE is still struggling.
The soldiers are leading, and nothing illustrates this better than the Nasdaq’s chart. While the index contains high-profile, mega-cap tech stocks like Microsoft, Apple (AAPL) and Google (GOOGL), it is predominately made up of mid-cap stocks.
The Nasdaq’s next challenge is to penetrate the top of the trading zone at 4,485, having pierced its 50-day moving average at 4,480 on Friday. Above the trading zone are six weeks of overhead with a top at 4,611. MACD is bullish.
Conclusion
The key to whether a breakout to new highs is ahead is in the hands of the high-volume block traders. And in one week, their volume dropped over 25% from a high of 5,897 to an average 4,371.
As noted on Friday, bullish sentiment among investors — a contrarian indicator — rose to its highest level since Aug. 28.
Nevertheless, the most important factor in projecting the future of stocks is price. All other indicators are secondary. Thus, if the barriers noted above fall on high volume, jump onto the long side of stocks. However, with volume decreasing and breadth at just 1.3-to-1 on the Nasdaq, it is unlikely that stocks will break to new highs until at least mid-November.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
