Earnings Spread Good Cheer

Major U.S. indexes rallied back into long-term resistance areas on Thursday on the strength of positive earnings reports as they shrugged off a poor Markit PMI reading.

Nearly ten percent of the S&P 500 companies reported their earnings on Thursday, making it the busiest day of the reporting season. The homebuilding sector rallied after PulteGroup (NYSE:PHM) reported earnings of 45 cents per share on $1.58 billion in revenue, beating estimated earnings per share of 36 cents on revenue of $1.46 billion. The decisive earnings beat gave a boost to other homebuilding stocks, as PHM shares soared 7.01 percent to $17.85. The SPDR S&P Homebuilders ETF (NYSE:XHB) jumped 2.29 percent to $31.25.

The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 95 points to finish Thursday’s trading session at 15,509 for a 0.62 percent advance. The S&P 500 (NYSEARCA:SPY) rose 0.33 percent to close at 1,752. The Nasdaq 100 (NASDAQ:QQQ) advanced 0.49 percent to finish at 3,362. The Russell 2000 (NYSEARCA:IWM) surged 0.71 percent to end the day at 1,118.

In other major markets, oil (NYSEARCA:USO) advanced 0.11 percent to close at $34.99. On London’s ICE Futures Europe Exchange, December futures for Brent crude oil fell 80 cents (0.74 percent) to $107.00/bbl. (NYSEARCA:BNO). December gold futures rose $12.60 (0.94 percent) to $1,346.60 per ounce (NYSEARCA:GLD). Transports were flying safely above the drones on Thursday, with the Dow Jones Transportation Average (NYSEARCA:IYT) climbing 1.06 percent.

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Stocks abruptly jumped out of the red during the last half-hour of the trading session as the yen suddenly weakened against the dollar. A weaker yen causes Japanese exports to be more competitively priced in foreign markets. The yen weakened to 97.62 per dollar during Thursday’s trading session in Tokyo (NYSEARCA:FXY). The Nikkei 225 Stock Average advanced 0.42 percent to 14,486 (NYSEARCA:EWJ).

Wednesday’s decision by the People’s Bank of China against adding funds to money markets because of soaring consumer prices, continued to send money market rates higher on Thursday, causing a further stock market decline. The Shanghai Composite Index fell 0.86 percent to close at 2,164 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index dropped 0.71 percent to end the day at 22,835 (NYSEARCA:EWH).

In Europe, stocks made solid gains following a number of better-than-expected earnings reports – especially from the automotive sector. Daimler AG jumped 3.3 percent and BMW soared 1.9 percent. The Euro STOXX 50 Index finished Thursday’s session with a 0.72 percent surge to 3,038 – climbing further above its 50-day moving average of 2,887. Its Relative Strength Index is 67.71 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,685 after finishing Thursday’s session with a 0.33 percent advance to 1,752. Its Relative Strength Index rose from 64.39 to 65.79. Although the MACD appeared to climb further above the signal line, the MACD histogram indicated a slight decline, suggesting the likelihood of another retreat.

For Thursday, most sectors were solidly in positive territory, except for the utilities sector, which declined 21 percent, and the healthcare sector, which was unchanged.

Consumer Discretionary (NYSEARCA:XLY): +1.00 percent
Technology: (NYSEARCA:XLK): +0.24 percent
Industrials (NYSEARCA:XLI): +0.75 percent
Materials: (NYSEARCA:XLB): +0.50 percent
Energy (NYSEARCA:XLE): +0.48 percent
Financials: (NYSEARCA:XLF): +0.14 percent
Utilities (NYSEARCA:XLU): -0.21 percent
Health Care: (NYSEARCA:XLV): (unchanged)
Consumer Staples (NYSEARCA:XLP): -0.19 percent

Bottom line: With margin debt at record levels and the indexes below long term resistance, the overwhelming bullishness will likely be tested again as the indexes try to break through to and hold new record highs.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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