Good day! All three of the major indices crept once again to new 52-week highs on Friday, but it wasn't an easy session for the market. After a strong breakout rally on April 19th and 20th, the pace of the upside slowed as the Nasdaq came into prior highs and S&P 500 broke through to new ones on the year. This slowdown was particularly evident in Friday's session thanks to profit-taking ahead of the weekend. The index futures broke higher in the early morning hours, but the rally was a choppy one, leaving the indices without a strong directional bias intraday and few clear intraday setups. We did see some of that pre-weekend profit-taking in the afternoon, but the indices still managed to squeak by with a small gain by the closing bell.
Dow Jones Industrial Average (Figure 1)
Friday's economic data didn't have much of an impact on the day's price action. According to the Commerce Department, personal income rose 0.5% in March. It had risen 0.4% in February. Meanwhile, personal spending increased 0.6% in March, compared to an upwardly revised 0.9% in February. Overall the pace of economic growth slowed dramatically compared to the final quarter of 2010. The annual pace at that time was 3.1%. So far this year that pace has dropped to 1.8%. Personal consumption expenditures for the first quarter, which measure the price changes in consumer goods and services, rose 0.4% in March. Excluding food and energy (which nobody really needs anyway, right?), the increase was 0.1%.
Higher gasoline prices have certainly been hitting home these days, and those of us who are keen on purchasing fresh produce have seen those prices hit our pocketbooks as well. Back in January many of the headlines focused upon food prices, as well as gas prices as being two areas consumers could expect to see a crunch for the first half of this year and so far this has been the case. Although it may not feel like it, however, Americans have been relatively shielded so far by the worst, in part thanks to strong yields on cereal crops this past year. Countries such as India, on the other hand, have already experienced double digit inflation this year.
Fed chairman Ben Bernanke has been keen to downplay inflation fears in the U.S., stating this past week in his first-ever press conference that the U.S. central bank does not foresee sustainability in the recent increase in inflationary trends. The current view is for 2.1% to 2.8% in 2011, which was higher than previously anticipated. Meanwhile, the Fed cut its projections for growth in 2011 to between 3.1% to 3.3%. The first quarter gross domestic product data will be released on Thursday.
S&P 500 (Figure 2)
In other news, Chicago's purchasing managers index fell from 70.6 in March to 67.6 in April. This was lower than anticipated. Consumer sentiment, however, rose from 67.5 in March to 69.8 in April according to the Reuters/University of Michigan's consumer sentiment index. This final reading for April was revised higher from 69.6.
The Dow Jones Industrial Average ($DJI) ended the day a gain of 47.23 points, or 0.37%, and closed at 12,810.54 on Friday. Over half of the Dow's thirty index components posted a gain. They were led by Caterpillar Inc. (CAT) (+2.46%), Boeing (BA) (+1.57%), Intel (INTC) (+1.54%), and Cisco Systems (CSCO) (+1.33%). Caterpillar's gains can be attributed to an unexpected jump in first-quarter profits and a boost in its profit target for 2011, announced Friday morning. The weakest performers were Microsoft (MSFT) (-2.96%), Verizon (VZ) (-1.28%), and Bank of America (BAC) (-1.13%). Microsoft's losses followed disappointing sales for its Windows platforms. The Dow ended the week higher by 2.44% and 4% on the month.
Nasdaq Composite (Figure 3)
The S&P 500 ($SPX) rose 3.13 points, or 0.23%, and closed at 1,363.61. The strongest percentage performer in the index on Friday was Goodyear Tire & Rubber Co. (GT) (+12.04%). Occidental Pete Corp. (OXY) (+8.71%), Motorola Mobility Holdings (MMI) (+8.63%), and Cerner Corp. (CERN) (+7.22%) rounded off the top four gainers. The weakest percentage performers were Monster Worldwide (MWW) (-7.76%), VF Corp. (VFC) (-7.45%), Pitney Bowes Inc. (PBI) (-6.19%), and Coventry Health Care (CVH) (-6.08%). The S&P 500 ended the week higher by 1.96% and 2.9% for the month.
The Nasdaq Composite ($COMPX) ended the session higher by 1.01 points, or 0.04%, on Friday and it closed at 2,873.54. The strongest performer in the Nasdaq-100 was Cerner Corp. (CERN) (+7.22%). The other top gainers included Liberty Media Corp. (LINTA) (+4.11%), NVIDIA (NVDA) (+2.51%), and Broadcom Corp. (BRCM) (+2.03%). Research In Motion (RIMM) stunned investors with a 14.03% loss after shifting its previous month's guidance to reflect a slowdown in recent shipments of its BlackBerry smartphones. New products later in the year are expected to once again boost sales, but the market reacted with skepticism. Other top decliners in the Nasdaq-100 were Warner Chilcott (WCRX) (-4.16%), Flextronics (FLEX) (-3.19%), and Microsoft (MSFT) (-2.96%). The Nasdaq Composite ended the week higher by 1.89% and ended the month with a 3.3% gain.
In the week ahead there will be a lot of potentially strong market-moving data and events. One such event took place on Sunday evening when news reached the wires that Osama Bin Laden had been declared dead. The indices futures jumped sharply and are now poised for a strong open on Monday morning despite last week's slowdown. Nevertheless, a large gap will limit intraday potential and can create a more choppy day of trade, so use added caution.
This is also going to be a very busy week for economic data and earnings reports. On the economic front, Friday's employment data will be the most anticipated news for the week, but things will kick off on Monday with the ISM Manufacturing Index and auto sales. Factory orders follow on Tuesday, while the ADP National Employment Index comes out on Wednesday and the Labor Department will release last week's jobless claims on Thursday.
Some of the major earnings reports to keep an eye on this week are Chesapeake Energy (CHK), Humana (HUM), and Massey Energy (MEE) on Monday; Pfizer (PFE), Avon (AVP), Legg Mason (MA), and MasterCard (MA) on Tuesday; Kellogg (K), News Corp. (NWSA), and Transocean (RIG) on Wednesday; Kraft Foods (KFT) and Sara Lee (SLE) on Thursday; and Washington Post (WPO) and Weight Watchers (WTW) on Friday.
Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.
Toni Hansen is president and co-founder of the Bastiat Group Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.