8:35am (EST)
The bulls went into Friday’s action with a slight lead for the week but spent much of the day in negative territory after a solid start. The momentum stalled shortly after the open as higher oil prices and the circus in Washington, D.C. kept a lid on things.
Oil surged to a high of $112 for the week after rallying over $2 on Friday. Gas prices are rapidly approaching $4 a gallon, on average, and the summer vacationing season is still a few months away. Consumers have done a good job of factoring higher gas prices into their budgets but for how long?
We were glad to see the U.S. government come to a budget agreement before a midnight deadline on Friday that threatened a shutdown. Without a deal, the federal government was expected to stop all services that weren’t considered “essential”. This would have meant most economic reports would have been suspended. In a way, we were hoping for a shutdown because the market usually does well when there is one.
The Dow fell 29 points on Friday and finished at 12,380. For the week, the index gained a little over 3 points. The high of 12,450 was just below our upside target of Dow 12,500-12,600. Earnings will decide if the Dow can make a run up to 13,000 but if expectations aren’t matched or exceeded, near-term support is at 12,200 and then 12,000.
The S&P 500 slipped 5 points to settle at 1,328 and was down 4 points, overall, for the week. The index challenged 1,340 all week but dipped below 1,325 on Friday. We have been mentioning strong resistance at the 1,350 level with a chance for a run up to 1,375-1,400 if broken. Near-term support is at 1,325 and then 1,300.
The Nasdaq dropped 15 points and closed at 2,780. For the week, Tech shed 9 points. The index traded to a high of 2,815 on Wednesday and 2,808 on Friday, but failed to close above 2,800 all week. We have mentioned near-term resistance at 2,800-2,850 and have said there is a chance for a run up to 3,000 if these levels are taken out. However, if earnings fail to impress, the index could fall back down to 2,700-2,650.
We said last week that April is normally pretty bullish and we were hoping for test up to resistance. The bulls fell a little short but there is still a chance the market can reach new highs. On average, April is the Dow’s best month and has posted gains of 2% for the past 60 years so history is on the bulls’ side.
We knew back in February once we came off the highs and hit a trading range that the market could be setting up for a huge battle going into first quarter earnings season. The fireworks begin after the bell today with Alcoa (AA, $17.47, down $0.19) kicking things off. The week gets more interesting afterwards with Fastenal (FAST, $67.33, down $0.49) on Tuesday, JP Morgan Chase (JPM, $8.66, up $0.05) on Wednesday and Google (GOOG, $578.16, down $1.84) on Thursday. On Friday, Bank of America (BAC, $13.48, down $0.13) and Charles Schwab (SCHW, $18.35, down $0.12) report earnings before the bell.
We did a 23-minute video covering this week’s earnings for those of you who have ordered our option trading course, How to Trade Options on Momentum Stocks.
Futures are pointing towards a slightly higher open this morning. Dow futures are 14 points to 12,340; S&P 500 futures are up 2 points to 1,326; Nasdaq 100 futures are higher by 6 points to 2,324.
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