Stocks are holding up reasonably well. The U.S. markets had risen more than 10% in the last two weeks on better than expected earnings data and guidance. A couple of high profile earnings disappointments from AMZN and MSFT last night sparked a sharp turn lower after hours. Yet the sell-off today has been almost mild and stocks are off their worst levels of the session. Overall the trend in corporate earnings remains surprisingly positive.
The rally continued in Asia. The Japanese NIKKEI has stretched its gains to eight days in a row climbing almost 10% in the process. The NIKKEI is up almost 6% this week alone. The Chinese Shanghai index is up 5.7% on the week. Meanwhile the Hong Kong Hang Seng index hit levels not seen since September 2008. Next week could be challenging as Asian markets face psychological resistance levels. The NIKKEI closed at 9,944 just under the 10,000 mark. The Hong Kong Hang SENG temporarily traded over the 20,000 level this morning and settled at 19,982. The Shanghai index looks overbought with the market soaring more than 100% in the last nine months.
European markets started off strong but the morning rally faded. The French CAC-40 lost 0.22% and the German DAX gave up 0.3% and both ended a nine-day winning streak. The English FTSE marked its 10th gain in a row with a late day bounce to close up 0.3%. Investors ignored sour GDP data out of Britain. The Office for National Statistics reported that England's GDP dropped 0.8% in the second quarter. This is a huge improvement over the 2.4% plunge in the first quarter but economists were expecting Q2 GDP to come in at -0.3% so the results were a disappointment. The new GDP numbers has pushed the annual decline to -5.7%. This is the biggest annual decline since records began back in 1955. Offsetting this negative data out of Britain was the German business sentiment or PMI survey. Germany is Europe's largest economy and the purchasing manager's survey continues to show improvement and is on the verge of actually turning positive. Readings over 50 indicate a growing economy and July's PMI came in at 48.9.
Another important survey out today is the Reuters/University of Michigan index of consumer sentiment. Consumers account for more than two-thirds of the U.S. economy. A confident consumer spends more money while a nervous consumer will cut back on purchases and save. The preliminary July consumer sentiment survey came in at 64.6. Today's final read of 66.0 was pretty much inline with estimates around the 65.0 level but it marks a sharp drop from the 70.8 in June.
The U.S. dollar is drifting lower again, which is giving gold a minor boost today. Copper futures are also posting a gain and crude oil is also fractionally positive around $67.30 a barrel. A quick glance at the sector indices shows biotech, gambling, and airlines are all out performing the market with gains of +1.5% or more. The worst performers today are semiconductors, defense, retail and the railroads.
Currently the S&P 500 index is off less than four points at 972.50. The NASAQ composite is down just over 20 points and off its lows near 1937. The Dow Industrials are only down about 25 points and bouncing from a morning test of the 9,000 level. The small cap Russell 2000 is virtually unchanged with a one-point loss around 545.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
As I scan the OptionInvestor.com play list this afternoon I don't see a lot of movement. I do want to remind readers that we plan to exit the LO call play at the close today to avoid holding over the Monday morning earnings report. Our CAT put play has been stopped out. The CMP put play is seeing a big bounce from its morning lows. LEAP continues to under perform with another 2.8% loss. UTX is also under performing with a 2.6% loss and a drop below several key moving averages.