More of the Same

 | Jan 25, 2012 | 8:21 AM EST  | Comments
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Leaders don't create followers, they create more leaders.
--Tom Peters

By all measures Apple (AAPL) posted a stellar earnings report last night. So will Apple's leadership will create more leadership and keep the broad market running higher, or is this a company-specific event that will have little sympathetic effect beyond a few suppliers? Apple's report was great, but does it signal any real change for other stocks?

So far this morning the action is not nearly as frothy as it was initially last night. AAPL has a major weighting in the Nasdaq and Nasdaq 100, both of which are gapping up, but the S&P 500 is actually indicated slightly lower in the early going as downgrades of Goldman Sachs (GS) and Morgan Stanley (MS) are on the wire and financials are seeing some pressure.

Clearly AAPL is great for AAPL, but this market still has to deal with extended technical conditions and a weak foundation -- one earnings report isn't going to help all that much. In fact, even if AAPL continues to run higher it may trigger some "sell the news" action in the broader market. If stocks are unable to gain further traction on the AAPL news, watch for the sellers to become more aggressive. This is a very dangerous juncture here as AAPL may actually cause even more complacency when we are already battling a large supply of it.

The president's State of the Union address should have little market impact today. There was some talk about green energy, gas and oil but nothing particular new. The big moves in some of the natural gas plays I mentioned yesterday are probably mostly over. What is clear from the president is that there will be continued assaults on preferential tax treatment of capital gains and dividends. That certainly isn't market-friendly but it is vague, uncertain and unsupported enough not to have any near-term impact.

The FOMC interest rate decision is on deck and market players will be watching closely for any hints about further quantitative easing. There have been few hints lately that anything in that regard is forthcoming. The likelihood is that the Fed will maintain its current stance and have little market impact, but even subtle changes in language can have a major market impact, so we'll have to be ready for that news.

Overall we are pretty much in the same position we have been for a week now. AAPL earnings obviously helped sentiment but we are still technically extended and losing momentum. The flat action is helping us to consolidate and we obviously have some very strong underlying support, but we have not been able to make much upside progress and we have to watch for profit-taking to pick up should we continue to sputter.

Although I've been looking for weakness lately, I've been sticking with short-term longs and some quick trades. Until the dip-buyers step aside, there isn't much opportunity on the short side. On the other hand, the straight-up action for over a month is leaving us with fewer and fewer entry points for longer-term trades. We have had some very good trading and some stock-picking opportunities recently but it is becoming more challenging as we have had little rest.

We'll see if the good AAPL report turned out to be the turning point that many have been anticipating, but I'm going to make sure the bears prove themselves before they earn my respect. Stay nimble -- it should be increasingly bumpy.

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