Robust Tech Earnings Send NASDAQ Higher

By David Becker

(eToro Blog) Wall Street sentiment was mixed to close out the week on Friday as investors continued to focus on three markets drivers. Earnings have been the recent driver of the equity markets and over the medium term, stronger earnings and outlooks could push equities to new 2011 highs. The U.S. debt ceiling and E.U. emergency meeting have also helped to generate positive momentum.

Earnings momentum has highlighted the week; Google, Apple, and IBM showed the strength of the technology sector and pinpoint those areas of the market that are growing at an above trend rate. Apple's blowout earnings put the focus on Iphones and Ipads, which reflects the power of mobile information. The ability for Apple to find scalable businesses makes its stock price attractive, a benefit which will spill over into the broader NASDAQ market.  The large cap technology stocks helped push the NASDAQ higher as well as choke up solid gains of more than 3% for the week.

McDonalds, Microsoft and GE finished the week with a flurry of solid earnings, but there was a fly in the ointment in Caterpillar's earnings report, which kept the Dow Industrials on the defensive.

Caterpillar's 2^nd quarter earnings came in at $1.72 a share, 3 cents below analysts' estimates while net income in the quarter was $1.52 a share. Compare that, however, to a year earlier when Caterpillar earned only $1.09 a share. Excluding the impact of Bucyrus, Caterpillar said it was raising expectations for 2011; their analysts not forecast revenue in the range of $54 to $56 billion and profit per share of $6.75 to $7.25, as compared to previous forecasts of  $52 to $54 billion, and $6.25 to $6.75 per share. In spite of the slight miss on projections, what really spooked the market was a comment made by the company's CEO which related to the uncertainty in China. Market participants used this as an excuse to take profit on the large cap stock, which in turn drove down the Dow Industrials.

Economic data throughout the week was less than impressive in the U.S. The housing market reported data that was mixed; according to the U.S. Commerce Department housing starts and building permits rose more than expected, but existing home sales declined, as a large number of prospective buyers opted out of contracts. Existing-home sales decreased 0.8% from a month earlier to an annual rate of 4.77 million.

The number most watched by investors was Thursday's jobless claims; the U.S. Labor Department reported that new claims increased by 10,000 to a seasonally adjusted 418,000 in the week ended July 16; the number was well above the consensus forecast which had predicted no change, and reflects the 14^th consecutive week of initial claims above the 400,000 level.

The NASDAQ 100 has broken out and Thursday's volume was validated with a follow through rally on Friday. The close near to 2430 signals further upside momentum, which is a new high for 2011.  Resistance is seen near the 2550 level, with support at the 20-day moving average near 2350. With the 20-day moving average crossing the 50-day moving average during the week, positive momentum is gaining strength. The RSI on the NASDAQ 100 is only 64, which shows that the rally is not oversold.

The S&P 500 Index still needs to clear resistance at 1255 and 1270 to break to the upside. With the 20-day moving average just crossing the 50-day moving average, the S&P 500 should remain bid. Support is seen near the 20-day moving average at 1320 and then lower at the 50-day moving average near 1311.

The DJIA lagged the major indexes and failed to break through resistance near 12,750. A break of this would target the 2011 highs near 12,870 while support is seen near the 20-day moving average at 12,465.

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