Stocks Score Second Winning Week

October kept up its winning ways, with stocks posting their second consecutive weekly gain on Q3 earnings and more optimism for the Euro zone.

There were two main factors driving the action on the Street this week.

The first was the Euro zone, where France and Germany pledged to create a long-term solution for the union by the end of the month. Make no mistake about it, that is a plan to have a plan, where neither politicians nor central planners have a strong history of execution. But for the time being, the market is buying the story, encouraging the bulls that if a decent solution hits the Street, stocks could be in position for another sharp leg higher out of the 2-month range.

The other factor supporting the market was the official beginning of Q3 earnings. Although the very early results have been a bit mixed, with JP Morgan (JPM) coming in soft while Google, Inc. (GOOG) knocked one out of the park, the trend in earnings over the last two years is bullish.

The Street is generally pricing that in right now, but things will get interesting when companies start talking about their outlook; what’s in store for Q4 and the beginning of 2012?

Which is basically the ultimate question right now that everyone is trying to figure out.

Is this slower growth or will the economy slip back in to a recession?

This week will bring new focus to the conversation as the market fields a slew of economic data.

  • Monday-Empire Manufacturing
  • Tuesday-Producer Price Index (inflation)
  • Wednesday-Consumer Price Index/Housing Starts
  • Thursday-Jobless Claims/Existing Home Sales/Philly Fed Manufacturing

And earnings will rage on, giving us an update on the health and outlook of the private sector. So the market will have plenty of fresh data to sink its teeth into this week in order to make a fresh pitch higher or lower.

As it stands, the averages are pressuring the 2-month high. A little good news on the earnings front and some good economic data would go a long way to support confidence. Take a look at how the S&P500 is pressuring its 2-month high in the chart below, each bar represents one day (daily chart).

chart provided by Yahoo!

 

 

 

 

 

 

Updates:

With the market posting another solid weekly gain, we saw some very bullish movement in our stocks.

Energy has been absolutely beaten down in the last two months, but now that the bulls are reemerging, shares are jumping higher. We saw that show up in Baker Hughes, Inc. (BHI), with the drilling-services provider gaining 15% on the week. It also gave Cimarex Energy (XEC) a boost, adding 7% for an outsized performance of its own.

We also saw some excellent movement from technology, with Apple, Inc. (AAPL) up 14% on the week and Check Point Software (CHKP) adding 5%. Apple is set to report is Q2 results on Tuesday, where the company has a history of blowing the Street away and beating big. Shares recently hit a new all-time high, but a big beat should pave the way for another leg higher.

EZCorp, Inc. (EZPW) was the only stock in the red, tripped up in the middle of the week on a report naming it as one of the 10 most dangerous companies in North America. The criteria for the study were leverage, governance and accounting. I don’t have access to the report, but it definitely got the market’s attention, pressuring shares of EZPW all week in the bullish market. EZPW still looks like the top choice in its space, with impressive earnings growth and a compelling valuation, so for the time being we are going to stick with our horse and look for the rebound.

But with the bulls taking control, growth stocks spent most of the week charging higher.

The Brazilian ETF (EWZ) was up 9%, VeriFone Systems (PAY) was up 8.2% and  Blackstone Group (BX) was up 7%. Commodity stocks were also in the game, with Market Vectors Junior Gold Miners (GDXJ) up 7% while agriculture company Bunge Ltd (BG) added 6%.

No doubt it was a solid week to own stocks. Let’s look for some good data to support the trend.

Until next week, here is a good article discussing key drivers for Apple’s Q4 results Tuesday after the bell. Enjoy.

Apple Earnings Expected to Soar

Your Investment Partner,

Mike

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.