US EQUITIES GAIN STRENGTH, AS DATA SHOWS ECONOMY MAY BE STABILIZING, ANNOUNCEMENT OF STRESS TEST DATE OFFERS SOME ALLEVIATION OF UNCERTAINITY.
US equities traded to key technical highs, with the NASDAQ closing at its high for the year, after US government statistics offered signs that the economy might be showing signs of stabilizing and technology companies “dressed to impress” with regards to earnings expectations.
The technology sector, which lagged Wednesday's gains on a weak report from Intel, revered course to the upside on expectations of strong earnings from sector leaders Google and Hewlett Packard. The companies did not disappoint as Google reported better than expected earnings ($4.1 billion vs. $4.09 billion exp) and Hewlett Packard was shown to have taken over the top spot of PC makers from Dell. In addition, Sun Microsystems rebounded on reports that it had asked IBM to resurrect takeover talks. The cash rich sector continues to appeal, particularly as investors become more concerned regarding balance sheets and dividends. (These companies look far better than the Federal Government)
Media companies posted strong gains as the beaten down sector is beginning to find value with traders on expectations that the sector should show significant gains when the overall economy improves. These late day shots of positive sentiment helped the major indices shake off early struggles to reach positive territory. The struggles occurred in spite of data on employment and business sentiment that showed surprisingly positive gains and earnings from JP Morgan that came in better than expected. More than likely, equities appeared to be nursing a hangover from the overnight session after China reported the largest recorded drop in its GDP and Euro zone economic data continues to disappoint.
The markets should likely remain quiet overnight in anticipation of the earnings (losses) report from Citigroup. As one of the poster children for toxic asset creation, the markets have been seeking to use the bank as a signal flag for a slowing of the skid relating to the global credit crisis. The market appear to be looking for leadership from its losers rather than its winners, so look for volatility to return to the markets for at least the early part of Friday's session, with the market offering a longer term verdict perhaps next week.
From a technical perspective, June Dow futures closed above its resistance level of 8060. Next target level should be 8140 before overbought indicators stage a pullback to the 7840 level.
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