For the third day in a row the dip buyers did a nice job of walking us back up after a weak open. But we are looking a bit tired now as the first trading week of the year comes to an end.
Many of those who are off to a good start will want to make sure they bank some of those gains. We are rolling over now and I'm keeping things very tight.
It is pretty obvious that we have benefited from some seasonality this week, but the focus is going to start shifting very quickly to earnings. Alcoa (AA) kicks things off on Monday night, but the most important reports won't start hitting for another week after that.
Given that we have already had more warnings this quarter than in several years, you have to wonder how earnings season is going to play out this time. One theme that has been consistent for two years now has been strong reports in face of economic woes. If you just look at corporate earnings, you'd hardly realize we have been going through the worst economy since the Great Depression. Is that finally going to catch up with us? Are we going to see more guide downs? Is Europe going to be the convenient excuse for some misses?
Although we have a pretty good gain for the week, almost all of came at the open on Tuesday. We are down overall intraday, even though we have three good-size bounces from gap downs. The dip buying is a positive, but it has not been overly exuberant. I suspect that much of the dip buying has been money managers who are worried about starting the year off underperforming their benchmarks.
We'll see if the bulls can regroup and make a final push into the close, but I'm not expecting much. I'm staying flexible and zealously protecting any gains.