Stock Market: Rallies to a Three-Month High!
The Past Week: Jobs Report Helps The Market!
by Ian Harvey
August 06, 2012
Stocks rallied to a three-month high in the past week, helped by more assertive language from the Fed Wednesday. But the market rose sharply Friday after the July employment report showed a surprise gain of 163,000 jobs to nonfarm payrolls, breaking a string of disappointments.
After the Federal Reserve and the European Central Bank didn't take aggressive, immediate measures to spur growth in the past week, the market disappointment was fairly short-lived, considering how hotly the actions had been anticipated.
The jobs report was one factor that boosted stocks in the past week. Also fueling the rally: better-than-expectedresults from social-media site LinkedIn (LNKD). Procter & Gamble (PG) shares were higher as an announcement of a $4 billion share buyback program offset weak guidance. The Institute for Supply Management's July report on the services economy was a touch better than expected.
This year has seen quite a few wide swings in three of the main asset classes, gold (GLD), bonds (TLT), and stocks (SPY).
GLD was up over 14% early in the year, but by early in the summer had given up those gains. Bonds as represented by TLT were down 9.5% in March, but up over 9% just a few weeks ago. Stocks have been positive since the beginning of the year, peaking at over 13% in early April. With Friday’s gain, stocks have once again taken over leadership.
• The Dow Jones Industrial Average (DJI) regained its perch atop 13,000 on Friday, and finished at its loftiest price since May 3, posting a 217.3-point, or 1.7%, rise. At its session best of 13,133.18, the Dow was up more than 254 points.
The rally was big enough to completely offset four straight down days and allow the major market indexes to finish higher for the fourth straight week.
Over the past week, the blue-chip barometer eked out a 0.2% increase, marking its fourth-straight weekly gain.
• The Standard & Poor's 500 Index (SPX) pierced the 1,390 mark for the second time in a week on Friday, and leapt to its highest perch since May 3.
The S&P fell about 0.7 percent on Thursday following the ECB's comments compared with a nearly 2 percent rise before in anticipation of action.
The SPX ended the past week up 0.4 percent.
• The Nasdaq Composite Index (COMP) charged to a 58-point lead on Friday, or 2%, win.
The COMP found a foothold above the 2,960 level, and saw its best finish since July 5. For the past week, the COMP gained 0.3%.
• The Nasdaq-100 Index (NDX), which tracks the largest Nasdaq stocks, surged 50 points to 2,676 in the past week. Apple (AAPL), the biggest influence on the index, was up $7.91 to $615.70.
The CBOE Market Volatility Index (VIX), widely considered the best gauge of fear in the market, fell back nearly 11% Friday, and landed at its session lows. The VIX gave up 6.3% on the week and closed at its lowest point since July 19.
TOP OPTIONS TRADES SINCE JUNE 01, 2012
|HLF July 47.50 Calls||53%||APPL Aug 650 Calls||67%|
|DLTR Aug 110 Calls||32%||UIS Oct 17 Calls||79%|
|HSY Aug 70 Calls||56%||TSO Nov 25 Calls||54%|
|NKE Oct 92.50 Calls||49%||HLF July 47.50 Calls (again)||38%|
|FB Aug 25.00 Puts||500%||DISH Sept 30.00 Calls||100%|
|APPL Jan 13 650.00 Calls||71%||CSTR Oct 42.50 Puts||400%|
|LNKD Aug 92.50 Puts||30%||LNKD Aug 100.00 Calls||250%|
Crude Oil in the Past Week
The September crude-oil contract accelerated to the upside Friday, gaining over $4 a barrel, as the jobs number had traders hoping for increased demand.
There is important resistance now at $92 to $93.25 (line a). A close above this level should signal that the bottom in crude oil has been completed.
The daily on-balance volume (OBV) shows a pattern of higher highs after overcoming the resistance (line b).
Brent crude was up $2.84 to $108.74 in the past week.
The national average price of gasoline was $3.567 a gallon, according to AAA's Daily Fuel Gauge Report. That's up from $3.354 on Thursday and up 2.3% for the past week. The retail price is up 8.9% for the year and has risen 7.3% since bottoming for 2012 at $3.326 a gallon on July 2.
Precious Metals in the Past Week
The SPDR Gold Trust (GLD) rebounded Friday, but still closed the past week over 1% lower. The chart shows that GLD retested the breakout level (line c), which is an encouraging sign.
In last week’s ”Stock Market Results – July 30, 2012”, it was discussed that the seasonal pattern for gold would likely bottom in July. This analysis uses data going back to the 1970s.
Clearly, GLD needs to close above $158 to support this view that it has bottomed. The first good support now sits in the $151 to $152 area.
For the iShares Gold Trust (IAU), the key resistance level is at $15.90 to $16. Support for IAU now sits at $15.20 to $15.40.
Gold, meanwhile, settled up $18.60 to $1,609.30 an ounce.
Silver in the past week, settled up 80.6 cents, or 3%, to $27.80 an ounce.
Copper added 7.7 cents, or 2.3%, to $3.3675 a pound.
Treasury Yields in the Past Week
Interest rates were higher with the 10-year Treasury yield hitting 1.577%, up from 1.478% on Thursday.
Currency in the Past Week
The dollar was lower against the euro and the British pound but higher against the Japanese yen.
Company News and Earnings in the Past Week
Several stocks hit multi-year highs, including Kraft, Gap, Target, Monsanto, Comcast, Cintas and CBS.
• Knight Capital Group (KCG) rebounded after the Wednesday software trading glitch that cost it $440 million. TD Ameritrade and Scottrade will resume trading with Knight, reversing their decision to abandon the company in the wake of the glitch.
• In earnings news, Kraft Foods (KFT) earned 68 cents per share in the second quarter, two cents above estimates. While revenue fell short of expectations, the food producer left its full-year forecasts unchanged.
Also, Kraft said it will split itself in two on Oct. 1. Its legacy North American grocery business will retain the Kraft name. It will spin off its international snack food business, which will be renamed Mondelez International.
The spinoff will force a change in the Dow membership, and there's speculation that Apple might split its shares by as much as 10-to-1 so that it can be added to the Dow. The Dow is a price-weighted index. So, movements of higher-priced stocks have a bigger influence on the index.
• Dow component Procter & Gamble (PG) earned 82 cents per share for its fiscal fourth quarter, five cents above estimates. Revenue was light as sales and margins declined, however. P&G is forecasting a current quarter profit of 91 to 97 cents per share, below Street estimates. P&G also will repurchase $4 billion worth of its shares this fiscal year.
• In the media space, Viacom (VIAB) earned 97 cents per share for the fiscal third quarter, three cents below estimates. Viacom cited weaker ad sales for the shortfall as well as a big drop in movie studio results.
• CBS (CBS), meanwhile, reported a second-quarter profit of 65 cents per share, six cents above estimates, on strong results from its cable networks and an increase in profit margins.
• Advertising giant Interpublic (IPG) surged on speculation Publicis (EPA: PUB) may be considering a bid.
• Activision Blizzard (ATVI) beat estimates by eight cents with a second-quarter profit of 20 cents per share. The videogame producer raised its 2012 outlook, helped by strong sales of its new “Diablo III” game.
• LinkedIn (LNKD) matched analyst estimates with earnings of 16 cents per share. Revenue beat forecasts, and the business social networking site raised its full-year outlook on better results from business and advertising services.
• In financials, AIG (AIG) announced that the U.S. Treasury will launch an offering of $4.5 billion of its AIG common stock. AIG intends to buy up to $3 billion of the offering. Earlier, AIG earned $1.06 per share for the second quarter, well above analyst estimates of 57 cents per share on improvements at its insurance operations.
• Japanese automaker Toyota Motor (TM) reported a rebound in production and sales in North America and Japan, with a quarterly operating profit of 353 billion yen ($4.51 billion).
Economic News in the Past Week
In the past week, the markets were buffeted by economic data and came out intact. The FOMC disappointed some by taking no new action after their meeting concluded last Wednesday, and on Thursday the ECB left rates unchanged.
For the first time since May, the monthly jobs report did not disappoint the stock market, as it surged to new rally highs in reaction to the best job growth in some time. The trigger for stocks' surge was the Labor Department report that U.S. employers added 163,000 jobs to their payrolls in July, the most in five months. However, the unemployment rate, based on a different government survey, edged up to 8.3 percent.
The jobs report was the third big economic event of the week, and the only one of the trio to cheer Wall Street. The Federal Reserve made no changes to basic policy at the end of a two-day meeting on Wednesday, and the European Central Bank offered no changes or new initiatives to help the European debt crisis at its meeting on Thursday.
The 163,000 jobs gained offset a disappointing June report that was worse than originally reported. According to the Bureau of Labor Statistics, June job gains totaled just 64,000; the first estimate was 80,000.
The report showed 172,000 private-sector jobs created, up from 73,000 in June, and 25,000 manufacturing jobs added to the economy, up from 10,000 in June.
The economy has added 4 million jobs since February 2010, when the jobs market bottomed. But that's just 46% of the 8.78 million jobs lost between February 2008 and the 2010 low. About 4.5 million private-sector jobs were added in that period, which means public-sector employment fell by a half million. Most of that is in the state and local government sectors, primarily in education.
Private services added 148,000 jobs, including a healthy 14,000 increase in temporary help. The public sector shed a relatively modest 9,000 jobs and construction employment fell by a trivial 1,000. The other good news is that average weekly hours worked held at 34.5.
But the report has its downsides. While job gains were the best report since February, the unemployment rate for African-Americans was 14.1% overall and 14.8% for African-American men over age 20.
The jobless rate for men and women ages 16-19 was 21.5%, up from 20.5% in June. And the measure of people unemployed, forced to hold part-time jobs, and people who are "marginally attached to the workforce" was 15%, up from 14.9% in June but down from 16.1% in July 2011.
The Institute for Supply Management’s July non-manufacturing index came in at 52.6 after a June reading of 52.1. A reading above 50 indicates expansion for the services sector.
There was more good news on housing, as the S&P Case-Shiller housing price index revealed that housing prices rose in all 20 districts that they covered.
Consumer sentiment from the Conference Board also rose to its best reading since April.
Knight Capital Dilemma
Worries about a potentially big problem eased Friday: the woes at Knight Capital Group (KCG). Shares of the market-maker jumped $1.47 to $4.05 after news reports said two of its biggest customers -- TD Ameritrade and Scottrade -- will start to route trades through Knight's systems.
In addition, the company said it had secured a line of credit as it struggles to survive after a software glitch on Wednesday caused enormous volatility -- and left it facing a $440 million loss.
A number of big clients reportedly -- including TD Ameritrade, Scottrade, Fidelity and Vanguard -- had routed traders away from Knight after the glitch struck the market.
The Major ETFs in the Past Week
For the first time since May, the monthly jobs report did not disappoint the stock market, as it surged to new rally highs in reaction to the best job growth in some time. The overall unemployment rate actually rose, but that did not stop the buying and the short covering.
And, Friday also proved to be a strong day once again for the major Exchange-Traded Funds (ETFs). For two weeks in a row now we have seen a Friday jump, after sideways-to-lower price movement during the week. The strength on Friday is significant though, creating two month highs in three of the four index ETFs.
The short-term trend remains higher for all the indexes, although some are performing better than others. Also within striking distance in several of the ETFs are the 52-week highs.
However, even these impressive gains were not enough to turn the technical outlook positive. Signals are mixed though on different time frames - with certain time frames pointing to a correction, while the two month uptrend seems to be strong and signaling higher prices.
The market internals, like the Advance/Decline (A/D) line, are still lagging the price action -- the majority of strongly trending moves in the stock market are characterized by the market internals leading prices, not lagging them.
The Spyder Trust (SPY) had its best day in quite some time, gaining 2%. The S&P 500 is now not far below the widely watched 1,400 level, and the Dow Industrials has settled well above 13,000.