Stock Market Has Room To Move Higher |
By Toni Hansen |
Published
07/20/2007
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Futures , Stocks
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Unrated
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Stock Market Has Room To Move Higher
The market posted some strong gains once again on Thursday with a large gap higher into the open following a round of strong earnings and continued follow-through from the late day reversal on Wednesday when the market took off into the close after a great deal of weakness earlier in the session. Leading the rally based on earnings was IBM (IBM) after it reported its strongest quarterly performance since 2002. It gapped higher, continued to run for about 15 minute and then held a trading range for the remainder of the day. By the closing bell it had added 4.78 points and 4.3%. In other news, Juniper Networks, Inc. (JNPR) rose 3.33 points, or 12.5%, following an upgrade by Goldman Sachs from neutral to buy.
By sector, one of the top movers were metals and mining stocks. The index itself climbed 2.4% on the day. One of my favorites was Freeport-McMoran Copper & Gold (FCX). It had pulled back nicely into the 10 day simple moving average on Wednesday and then gapped up slightly on Thursday. After a small 15 minute rally it caught my eye when it fell into a range throughout most of the morning. It took off after hitting the 5 minute 20 sma at the 11:00 correction period and climbed throughout the remainder of the day.
Although the market had more than its fair share of upside breakouts, a number of stocks found themselves facing quite a bit of pressure. Alcoa Inc. (AA) fell sharply after an announcement by BHP Billiton PLC (BHP) that it is not longer considering Alcoa as an acquisition target. Qualcomm Inc. (QCOM) also took a hit when Broadcom Corp. (BRCM) and Verizon Wireless (VZ) announced a licensing agreement that will allow Verizon to sell mobile phones which contain a chip made by Qualcomm which was banned by the U.S. International Trade Commission last month. Verizon announced that as a result, it would cease efforts to overturn the ITC ban.
Other stocks which found themselves under water on Thursday were the financials, which continued to feel the strain of subprime woes. Standard & Poor again downgraded more than 400 mortgage-backed securities. Goldman Sachs Group Inc. (GS) fell 1.5%, Morgan Stanley (MS) dropped about 1.4%, and Merrill Lynch & Co. Inc. (MER) shed nearly 1%.
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After the strong open, the market had a really difficult time establishing an intraday bias. The result was that even though the indices are still seeing a bit more upside, the range is essentially still in play on the 60 minute charts and our bias has continued to hold well. A great deal of divergence existed on Thursday between the indices themselves. The Nasdaq Composite held the greatest relative strength, forming a nice breakout setup coming out of 12:00 ET, but the Dow was favoring the bears throughout the mid-day when it failed to break higher with the Nasdaq at noon. The S&Ps leaned towards the Dow's bias.
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In the end, all three indices had their way. The Nasdaq broke higher while the Dow and S&Ps still based with slower upside. Then at 2:00 ET the FOMC Minutes were released. The result was a sharp move lower, which broke the Dow and S&Ps out of their range. They fell sharply into the morning lows and the 5 minute 200 simple moving averages. The S&Ps found support at the morning lows, but the Dow moved slightly under those morning lows before it hit its own 5 minute 200 sma. In his release, Federal Reserve Chairman Ben Bernanke told member of the Senate Banking Committee that the pangs felt from foreclosures and delinquencies will "likely get worse before they get better."
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After the minutes were released the indices switched roles. The Dow and S&Ps climbed into the close, but while the Nasdaq did pull up somewhat, it stalled shortly after 15:00 ET and fell sharply into the bell. Even with the struggle for upside though, the market still has room on the 60 minutes charts to continue to press the highs. They do look to head slightly lower into the open though, so given the added chop this week, I'll be focusing mainly on the news plays intraday for setups on Friday.
Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.
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