Is the Upside Running Out of Gas?

 | Jan 24, 2012 | 1:51 PM EST
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The most amazing thing about the market so far in 2012 isn't the size of the gain but the remarkable underlying support. The S&P 500 has been negative only twice and we have not closed anywhere near the lows after the first trading day of the year. This very tenacious buying of any weakness gives the market an extremely positive tone.

How much longer can this action last? We are becoming more and more extended on diminishing volume, but there continues to be no real weakness. We have had a pretty good "sell the news" setup for earnings and that didn't work.

On the other hand, the pace of the upside move has been slowing for the fourth day now, and once the Apple (AAPL) report is out tonight, there aren't many other potential drivers in that regard despite the hundreds of reports still to come.

One thing that I've been very happy to see recently is that there is better individual stock-picking. We don't have the same highly correlated action we had in the later part of 2011, and there has some good old-fashioned trading for a change. Even if we do correct, I'm hopeful that we will continue to see stock-picking work again.

Apple is trading at its lows of the day as I write. Last quarter its report was a bit soft for the first time in a while but it has fought back and the analysts have issued some upbeat reports the past few days. Expectations are high but last quarter made it clear that the company won't necessarily blow out the numbers every quarter. It is going to take a very positive report to keep AAPL going at this point, but it is a stock that many love to love. They will buy weakness there no matter what, so there is always some support. The weak action in AAPL today is an indication that there is some nervousness, and given that the stock has traded straight up since mid-December the risk is high. I would not be at all surprised to see this report sold.

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