Posted on July - 12 - 2011

Traders May Savor Earnings, In Line Data

– The major U.S. index futures are pointing to a higher opening on Thursday, with sentiment suggesting an extension of optimism that was evident in the previous session. Retail sales came about in line with expectations in June and jobless claims declined sharply in the recent reporting week. Additionally, traders are also likely to be encouraged by positive earnings report released by JP Morgan Chase. These may help the markets to overlook a warning on U.S. debt rating by Moody’s.

U.S. stocks got a reprieve on Wednesday from the selling they experienced in the three previous sessions, aided by bargain hunting amid a lack of any major negative news. The major averages opened higher and rose steadily in early trading.

However, the averages gradually trimmed their losses over the course of the session before ending modestly higher, as traders reacted to the downgrading of Greece’s credit rating and worries about the U.S. debt limit.

The Dow Industrials added 44.73 points or 0.36 percent before closing at 12,492 and the S&P 500 Index closed up 4.08 points or 0.31 percent at 1,318. Meanwhile, the Nasdaq Composite Index closed at 12,492, up 44.73 points or 0.36 percent.

Twenty-two of the thirty Dow components closed the session higher, with Alcoa (AA), Disney (DIS), Caterpillar (CAT), Johnson & Johnson (JNJ) and Merck (MRK) advancing strongly.

Among the sector indexes, the Dow Jones U.S. Basic Materials Average rose 1.09 percent, the Philadelphia Oil Service Index added 1.30 percent, the NYSE Arca Disk Drive Index advanced 1.98 percent and the NYSE Arca Gold Bugs Index rallied 3.52 percent.

The Dow Industrials has broken a near term uptrend achieved due to the rally witnessed in the week ended July 8th, as the European sovereign debt crisis and soft non-farm payrolls numbers weighed on the markets. That said, the index is still supported by its 50-day MA (12,362), 100-day MA (12,306) and 21-day MA (12,277). If the 12,397-12808 range is broken to the downside, the risk of a pullback towards a long term support around 11,752 is possible.

In his testimony before the House Financial Services Committee, Bernanke implied that there is no need for another round of stimulus measures, as he firmly believes that the temporary factors that held down growth in the second quarter will vanish, resulting in a rebound in growth in the second half of the year. At the same time, the chairman stated that the central bank is willing to do more if required.

The Treasury auction of 10-year notes turned out to be encouraging as the yield was slightly below “the when issued.” The bid to cover ratio was at 3.17, above the 12-month average of 3.11.

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