Buyers Embracing Earnings Reports

 | Apr 22, 2013 | 4:34 PM EDT
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We stumbled after a gap-up open, but the dip-buyers decided to go to work and then had us up nicely for the rest of the day. So often we seem to suck in money that is sitting on the sidelines because of fear of being left out of another quick recovery. If you have been following this market closely over the last few years, you know that you can't underestimate the ability of a feeble-looking bounce to just keep on running.

What is helping the market right now is that after a rocky start, buyers are starting to embrace earnings. Caterpillar (CAT), for example, was trading in negative territory after its report but caught fire as it moved into the green. Google (GOOG) looked like it was going to see some profit-taking after the big move Friday, but it found its footing, and the momentum continued.

We now have a very strong report from Netflix (NFLX), which is being chased very aggressively. Reports like that really help sentiment and make it much tougher for the bears to produce the failed bounce they crave.

Technically, we had light volume and didn't post huge gains in the index, but the intraday reversal and the strong finish is bullish action. We have reclaimed some key support levels, and as I've said so often, you can't understate the power of the "V" in this market.

Netflix is creating some excitement right now, but the Apple (AAPL) report tomorrow is going to give us some real insight into the mood of the buyers.

Have a good evening. I'll see you tomorrow.

April 19, 2013 | 2:16 PM EDT

Timeframes at the Forefront

  • You have to think carefully about whether you trust strength to last.

As is so often the case, the market bounced just as I was discussing how there appeared to be limited buying interest. Breadth is still negative and the DJIA is lagging, but bored traders decided to stir things up and we have a better tone.

The key to dealing with a market like this is to be very clear as to your timeframes. Are you playing quick oversold bounces or are you looking to accumulate longer term positions?

When the market is trending up, stylistic differences and timeframes aren't quite as important. Everyone wants to catch a ride and most will stick with it as long as they can. When we have a breakdown, like last week, then you have to think much more carefully about whether you trust strength to last. If you are averaging in for the longer term, you may not care, but for shorter-term traders the issue of timeframes moves to the forefront.

I've often found that some of my trades are counter-trend bounce plays. Although I tend to be very diligent about sticking with the market trend when we are moving up, I have an inclination to look for bounces in downtrends mainly because the moves are often sizable and quite quick. The conventional wisdom is that the sharpest upside moves come within downtrends and I've often found that to be true.

I am getting a bit antsy because I don't have much going on. We are bouncing better than I thought and I don't have much confidence it is going to be sustained.  I'll be looking to possibly add positions like First Solar (FSLR) into the close, but I'm not feeling very aggressive.

April 19, 2013 | 10:37 AM EDT

Looking More Bearish

  • There is good reason to be cautious.

During the first quarter of the year the gap-up opens on Monday had a tendency to keep on running, even though many traders routinely sell into that sort of strength.  This morning we have action that is more typical of a bear market. We gapped up and 45 minutes into the day we've turned red and are seeing increased selling as breadth drops to close to 3-to-1 negative.

Apple (AAPL) is bouncing a bit on some analyst comments in front of earnings and Microsoft (MSFT) is perky due to a large value buyer, but Google (GOOG) failed to follow through and home builders are struggling on mediocre sales numbers.

This sort of selling pressure, after a bounce day on Friday, is a definite change in character. As I've discussed over and over, the market has had a very strong tendency to keep running once it bounces, even though a failed bounce seems to be the better technical bet.

Although I'd like to do some buying, all I've done so far this morning is sell some more positions. The action in small-caps is particularly worrisome with the IWM leading the market to the downside. That is an indication that the speculative appetite has diminished and makes it hard to trust trades for anything other than a quick bounce.

They say that in down-trending markets we tend to open strong and close weak. It is still early, but there is good reason to be cautious given the intraday pattern thus far.

April 19, 2013 | 8:26 AM EDT

Let's See How the Open Holds

  • Confidence in a sustained upside is low. 

"Forgotten is forgiven". -- F. Scott Fitzgerald

We have an old-fashioned Monday morning gap up and the big question is whether we are going to shrug off the worst week since November 2012 and resume the uptrend.

The market has had a remarkable tendency to completely forget whatever worries and concerns it had. Big-picture concerns are forgotten and forgiven in the blink of an eye and economic and fundamentals failures never seem to matter for long.

The bears will argue that it is different this time. We have had a pattern of major weakness in the spring each of the last three years and the market is struggling with some real negatives that cannot be ignored. The lousy jobs report and poor sentiment readings are reflective of concerns of an economic slowdown.

The liquidity created by Japan in efforts to drive the yen down is giving us a boost, but the primary issue we have to deal with right now is earnings. We had a reprieve from generally poor reports on Friday when Google (GOOG), Chipotle (CMG) and Microsoft (MSFT) all jumped higher on solid earnings, but the very poor response to IBM (IBM) and GE (GE) shows that there are some major problems lurking.

Apple (AAPL) reports on Tuesday and that is going to be a very good tell of the market attitude. The stock has been downtrending for months and the big issue is whether or not it has already priced in an anticipated soft quarter. The bulls feel the value is compelling, but the bears are leery of the negative momentum. The market's reaction will tell us quite a bit about the mood.

Technically we had a change in market character particularly in the IWM and Nasdaq which cut through their 50-day simple moving averages for the first time this year and broke their uptrend lines. Most trend followers no believe that the market is in correction mode.

The problem for the bears is that the market keeps coming back when it is in this position. While the recent breakdown requires caution we seem to catch many market players by surprise when we pull off a V-shaped move and suffer from short-term memory loss.

When we were uptrending, the strength on Monday morning often led to trend up days, so it will be a good test today to see how well we hold. Typically you expect a bounce to be pressured when there has been a recent breakdown but the traditional rules of technical analysis are often nonexistent these days.

I'm holding a very high level of cash and my plan is to watch to see how well this open holds up and then to look hard for some entries. There are some things of interest, but confidence in a sustained upside is low.

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