Stocks Break Sideways Trend With Strong Upward Move

Stocks moved mostly higher over the course of the trading day on Thursday after initially showing a lack of direction. The markets benefited from a positive reaction to quarterly results from Cisco (CSCO) as well as remarks by German Chancellor Angela Merkel.

The major averages pulled back off their highs going into the close but remained firmly positive. The Dow rose 85.33 points or 0.7 percent to 13,250.11, the Nasdaq jumped 31.46 points or 1 percent to 3,062.39 and the S&P 500 advanced 9.98 points or 0.7 percent to 1,415.51.

With the gains on the day, the major averages broke out of the narrow range seen over the past week. The Dow and the Nasdaq reached new three-month closing highs, while the S&P 500 rose to its best closing level in over four months.

Technology stocks helped to lead the way higher following the release of quarterly results from networking giant Cisco, which surged up by 9.6 percent on the day.

After the close of trading on Wednesday, Cisco reported better than expected fourth quarter adjusted earnings. The company also announced a 75 percent increase in its quarterly dividend to $0.14 per share.

The strength that emerged on Wall Street was also partly due to remarks by German Chancellor Angela Merkel, who said that Germany is committed to doing everything it can to maintain the euro.

"The European Central Bank, although it is of course independent, is completely in line with what we have said all along," Merkel added at a press conference with Canadian Prime Minister Stephen Harper.

Meanwhile, traders also digested another mixed batch of U.S. economic data, including a report from the Commerce Department showing a drop in housing starts but a substantial increase in building permits.

The report showed that housing starts fell 1.1 percent to an annual rate of 746,000 in July from the revised June estimate of 754,000. Economists had expected housing starts to dip to 750,000 from the 760,000 originally reported for the previous month.

At the same time, the Commerce Department said building permits surged up by 6.8 percent to an annual rate of 812,000 in July from the revised June rate of 760,000. Building permits are seen as an indicator of future housing activity.

A separate report from the Labor Department showed that initial jobless claims came in slightly higher than anticipated in the week ended August 11th, although the less volatile four-week moving average fell to its lowest level in over four months.

The Philadelphia Federal Reserve also released a report showing that its index of regional manufacturing increased in August compared to the previous month but remained in negative territory for the fourth consecutive month. A negative reading indicates a contraction in regional manufacturing activity.

In other news, shares of Wal-Mart (WMT) fell by 3.1 percent after the retail giant reported second quarter earnings that exceeded analyst estimates but on weaker than expected revenues. Looking ahead, the company raised its full-year earnings guidance.

Sector News

Most of the major sectors moved to the upside on the day, with electronic storage stocks posting particularly strong gains. Reflecting the strength in the storage sector, the NYSE Arca Disk Drive Index surged up by 3.8 percent to its best closing level in well over three months.

Housing stocks also moved sharply higher on the heels of the building permits data, driving the Philadelphia Housing Sector Index up by 3.6 percent. With the gain, the index reached a nearly four-year closing high.

Significant strength also emerged among gold stocks, which moved higher along with the price of the precious metal. With gold for December delivery climbing $12.60 to $1,619.20 an ounce, the NYSE Arca Gold Bugs Index rose by 3.4 percent.

Networking stocks also saw considerable strength following the news from Cisco, with the NYSE Arca Networking Index jumping by 3 percent. Software, steel, semiconductor, and oil service stocks also posted notable gains.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Thursday. Japan's Nikkei 225 Index surged up by 1.9 percent, while Hong Kong's Hang Seng Index ended the day down by 0.5 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index closed just above the unchanged line, the German DAX Index and the French CAC 40 Index advanced by 0.7 percent and 0.9 percent, respectively.

In the bond market, treasuries moved moderately lower after showing a lack of direction in early trading. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.1 basis points to a new three-month closing high of 1.836 percent.

Looking Ahead

Following the slew of U.S. economic data released over the past two days, the economic calendar for Friday is relatively light. Nonetheless, traders are likely to keep an eye on reports on consumer sentiment and leading economic indicators. (RTTNews)

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6 thoughts on “Stocks Break Sideways Trend With Strong Upward Move

  1. Dennis, using StockCharts, 1267 would be the level needed to turn the monthly red. Not impossible, but not likely by August 21st and the new moon. It could happen if there is a setup swoon in mid Sept. once the Berwanki put is saved for a latter date- good trading

    1. thanks JD, looking forward to Sept-Oct for my SPY Oct 123 puts, now at approximately 0.50, for a 'just in case' trade.

  2. I am wondering what the SP500 would need to do to turn the weekly and the monthly trade triangles red. Does anyone know the answer?

  3. I think the words used on this site are, "Stay on the sidelines" or "Go with the triangles (flow). Although a short as a hedge makes sense, nothing here technically suggests an outright naked short-premature expectations - until a break of 1402. IMO-We will likely see 1422 before we see 1402. 1500 is still on the charts. I agree a whipsaw looks likely, but let the charts tell us.

  4. Chris,

    I notice sometimes on the monthly triangles that price pulls back beyond the triangle. I am going to take a stab at shorting the SPY where it is right now with some PUT options in the money and to cover myself I am going to buy some out of the money Call's to hedge. SPY is right at a double top and if the market goes up a short squeeze will take place and my Call's will kick but while the Put's will lose 15% where my stop is.

  5. I really like the Market Club triangles system but right now I'm really not putting alot of faith in the new one that came in on the S&P this afternoon. This whole market action seems to me best avoided, regardless of what the charts look like.

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