(eToro Blog) Equity markets in the U.S. rallied on the last day of the trading week, as sentiment in the U.S. improved ahead of a very important weekend for the Eurozone. Investors were expecting that European officials would come out with a statement as to how best to recapitalize European banks. Discussions about the specific haircuts investors will need to take on Greek bonds, and restructuring of the Eurozone’s emergency bailout fund, the ESFS, are likely to be finalized on Wednesday.
The combination of better than expected earnings and solid economic data has created a bullish tone on Wall Street, despite the various fiscal issues that plague the European Union. Thursday's better than expected Philly Fed manufacturing numbers are creating the perception that October’s ISM manufacturing will show a "v" shaped bounce back in the sector. The Philadelphia branch of the Federal Reserve Bank reported that the Japanese supply chain disruptions have worked their way through the system and demand now exceeds supply.
On the earnings front, GE reported that earnings rose 57%, year over year, to $3.2 billion, or 22 cents a share, as revenue was unchanged at $35.4 billion. On the industrial side, GE's energy, aviation, health-care and transportation businesses all posted higher revenue, but the majority of the profits came from its financing unit.
In other equity news, S&P upgraded the credit rating on car maker Ford by two notches, moving it closer to investment-grade territory, citing the company's new labor contract and widening profit margins.
Despite the end of the week rally, volatility on the major averages and riskier assets like commodities remained elevated. The VIX volatility index settled at 32%, down 7% for the day on Friday, but up nearly 12% on the week. The VIX is trading well above the 200-day moving average near 22%. Until issues in the Eurozone are resolved the VIX is likely to remain high.
The S&P 500 peaked above resistance levels closing above 1238, which is the highest close for the major index since the beginning of August. Solid earnings numbers continue to drive stocks. The large cap index is on track to test the 200-day moving average near 1275. All the major averages are now in the black for 2011. The RSI which measures momentum, as well as overbought and oversold levels, pushed above 60, which confirmed the upside breakout in the S&P 500. Next week, investors will be watching both Caterpillar and UPS to determine if earnings are on solid ground.
The Nasdaq moved higher by more than 1.3% but was the worst performer of the major indexes. The technology index remained above last week's breakout level, near 2330. Support on the technology index is near the 200-day moving average near 2295 while resistance on the index is near 2385. A break to the upside would likely test the highs for the year near 2440.
Copyright 2011 eToro Blog
The Dow Industrials broke out to the upside pushing higher by more than 2.3%. The Dow 30 is now on target to test resistance levels near the 200-day moving average near 11,965. With the 20-day moving average crossing above the 50-day moving average, upside momentum is likely to continue.
Copyright 2011 eToro Blog