Courtesy of Sabrient Systems and Gradient Analytics
Earnings season is in full swing, and on balance, investors are liking what they hear. Tech leaders Google (GOOG) and IBM (IBM) got bought in truckloads after their fine earnings reports, although Apple (AAPL) disappointed after the close on Wednesday. By and large, earnings reports have been positive, including diverse companies like duPont (DD), Johnson & Johnson (JNJ), Verizon (VZ), and Intuitive Surgical (ISRG). You’ll recall that I mentioned GOOG and ISRG two weeks ago as top picks within Tech and Healthcare, and they both came through with flying colors.
Besides rising corporate revenues, record earnings, and forward guidance, the good news includes fewer jobless claims, surging housing starts, and modest inflation. Combine this with reasonable stock valuations, high levels of corporate cash, bullish technical conditions (including a “Dow Theory” buy signal from both the Dow Industrials and the Dow Jones Transportation Indexes), and still-reluctant retail investors (who are starting to be lured back in). Also, the House of Representatives passed a bill on Wednesday to raise the debt ceiling to whatever borrowing is required until May 19, which not surprisingly gave the market a jolt of confidence.
Not to be ignored, of course, is the Fed continuing to print QE3 money into a zero-interest rate environment. And because the banks are still mostly reluctant to lend it, much of that cheap liquidity continues to find its way into equities.
The S&P 500 SPDR Trust (SPY) closed Wednesday at 149.37. Bulls made short work of that tough band of resistance between 146 and 148. The 50-day simple moving average is about to cross up bullishly through the 100-day SMA. However, oscillators RSI, MACD, and Slow Stochastic have become extremely overbought as bulls refuse to give up much ground.
I have drawn a possible line of uptrend support starting from the intraday low that filled and tested the morning gap up on November 19 (Thanksgiving week). SPY was only temporarily violated in the final few days of 2012 when the fiscal cliff was still in doubt, but quickly recovered after the deal was done. Perhaps Apple’s disappointing quarterly report will give investors a reason to finally allow a pullback to retest support levels, starting with the convergence of the uptrend line and prior resistance-turned-support at 148, followed…
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