(By Rich Bieglmeier) A little profit taking and a pause on moderate volume is to be expected following a nice move higher for stocks, but if that's the best bears can do, they might as well step to the sidelines.
Maybe sellers will have a chance to take charge if Thursday's Jobless Claims come in higher than Wall Street's expectations of 367,000. Based on the recent trend, iStock believes we might see a result that's closer to 360,000. If that's the case, equities are likely to resume their ascension and regain momentum.
We still have a target of 3,050 for the NASDAQ and for the DOW and S&P to flirt with their 2012 highs. After 8:30 an eastern, that's it for economic news of importance for the week. If stocks can get off to a good start this morning, then we expect buyers to take control and run stocks higher through the remainder of the week.
There really isn't much more to the technical story than that. All three indexes reached cycle highs following a series of higher highs and higher lows. The trend remains intact and is the friend of long investors. Meanwhile, iStock believes the threat of a big correction is minimal at the moment, minus some off the wall event.
Earnings and sales have been primary drivers of the market's recent direction. If you recall, last week we reported that with 60% of the S&P 500's Q2 earnings on the board, revenues were running 2% below 2011's pace. Fast-forward a week, with 85% of the quarterly checkups complete; sales have picked up to a plus 3.19%. At the same time, operating earnings have added 5.88% versus last year and as reported profits of $346.68 are running ahead by 3.83%.
Overall, 64% of releases have been bullish surprises and 23% missed the mark. The rest, obviously, hit the Street's consensus bulls' eye. Of the sectors with more than 60% of profit ballots cast, industrial have been the strongest with 78.57% surpassing expectations, and Information Technology is second with 71.4% reporting earnings above analysts' outlooks.
It will be interesting to see if the profit pace can keep up in the 3rd quarter as Wall Street is revision eps lower for the 2nd half of the year as a result of deteriorating economic fundamentals. The pace of growth has definitely slowed for bottom lines in Q2 versus Q1. If the deceleration continues at the same pace in Q3, iStock expects to see profit eke out 1.5% to 2% growth compared to 2011's third quarter.
If that's the case, stocks could be on the verge of peaking in the next week or so. Unless, of course, Ben Bernanke throws a lot of easy money elixir on the fire in mid-September.
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