Traders ignore negative data and embrace selective good news

Tuesday, April 22, 2013 -

U.S. stocks posted a six straight day of gains as bulls saw encouragement in Netflix earnings announcement and the healthcare sector rallied on merger activity among some drug companies.   

Stocks saw further upside today on positive reaction to merger activity among several pharmaceutical companies as Valeant Pharmaceuticals offered to buy Allergan and Novartis agreed to buy GlaxoSmithKline’s cancer drug business, lifting the Dow and the S&P 500 back near their record highs – with tech stocks and small cap stocks still remaining well below their recent highs.

The indexes pulled back from their highs of the day going into the close but nonetheless managed to finish firmly in the black. The Dow climbed 65 points (+0.4%) to 16,514, while the Nasdaq jumped 40 points (+1.0%) to 4,161 and the S&P 500 rose 8 points (+0.4%) to 1,880. The NYSE finished at +0.4% and the small cap Russell 2000 at +1.1%.

In addition to the swell in merger activity, Netflix reported its first quarter earnings came in well above expectations and provided upbeat guidance going forward – helping market participants feel good about joining the rally once again.


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Weak Earnings limit Rebound Rally

A week ago the stock market was deeply oversold and now we have seen six straight days of gains (since April 15th). It is not too surprising to see a bounce here given such an oversold market heading into tax day.

However, going forward beyond another day or two, the focus begins to turn towards an essentially mediocre earnings results and the next FOMC meeting in a few days.

The first-quarter earnings at S&P 500 companies are expected to fall 1.1 percent in the first quarter compared with the same period a year earlier, according to S&P Capital IQ data – despite the fact that most are reporting they are handily “beating expectations”. If we do see a first quarter decline, it would be the first . . .

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