Trading on Friday was relatively flat considering the strong earnings and revenue gains from Amazon.com (NASDAQ:AMZN) and Expedia (NASDAQ:EXPE). This is because the GDP number — at an annualized rate of 2.2%, down from 3% at the end of 2011 and less than an expected rate of 2.5% — put a damper on Friday’s advance.
The good news was that the U.S. and European markets ignored the downgrade of Spain’s credit rating by two full credit notches on late Thursday, and instead concentrated on the better-than-expected earnings from U.S. stocks.
At the close, the Dow Jones Industrial Average rose 24 points to 13,228, the S&P 500 gained 3 points at 1,403, and the Nasdaq rose 19 points to 3,069. Volume on the Big Board totaled 787 million shares, while 457 million traded on the Nasdaq. Advancers exceeded decliners by about 2-to-1 on both exchanges.
For the week, the Dow rose 1.5%, the S&P 500 gained 1.8%, and the Nasdaq rose by 2.3%.
The Dow Jones Industrial Average took the lead on Thursday and continued higher on Friday. Its next target is the closing high of 13,264, and its support is at the conjunction of the 20-day and 50-day moving averages at 13,031 to 13,036. This all looks very bullish except that the stochastic is overbought. And…
A Dow Theory non-confirmation exists between the industrials and the transports. Although the Dow Jones Transportation Average is generally bullish, unlike the Dow Jones Industrial Average it has not broken from a sideways triangle pattern.
Immediate resistance is at 5,300, and immediate support is at the 20-day and 50-day moving averages at 5,220 to 5,241, and then at the lower support line just above 5,100. In order to synchronize with the industrials, the transports need to close above 5,350.
The S&P 500 broke through the 20-day and 50-day moving averages on Thursday, and followed with a slightly higher close on Friday. But it also closed above the psychologically important 1,400 barrier — a strong positive. It has resistance up to the closing high at 1,419, and support at 1,390 and the 20-day moving average at 1,387 and again at the 50-day moving average at 1,383 and the support line at 1,360.
The Nasdaq is the most volatile of the major indices. In April, it lost more than the other indices, but with a 19% gain in Q1, it had clearly outperformed the other indices. The gap down on Monday appeared to be an exhaustion gap, but it was followed by a gap up on Wednesday.
Conclusion: Last week, investors appeared to be more interested in earnings than GDP, the euro-contagion mess, and weakness in China, but don’t think for a moment that these issues have been permanently put on the back burner. With most of the big companies’ earnings behind us, the market is approaching a major top. And with an important jobs number coming on Friday, it’s doubtful that we’ll see a breakout to new highs this week.
Traders should take this rally as an opportunity to liquidate positions or go to the bearish side since the proven technique is to sell at resistance areas and buy on support. Long-term investors may want to hold their positions but sell (write) out-of-the money calls.
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.
