Earnings are the Main Driver

SUMMARY:
- No deal on the debt/deficit, no market collapse either.
- Moody’s downgrades Greece again, predicts default.
- SP500, NASDAQ still at the February highs, trying to keep the bounce moving.
- Earnings are the main driver (despite the budget issues), and they were what you would call mixed after hours.

MARKET SUMMARY

Lions, tigers, bears, and economic calamity. Oh my.

We all heard it Friday after the market close and all weekend: if no budget deal was struck over the weekend, heaven help us when the markets open on Monday.  Well, either heaven helped or the markets just did not see this as big a deal as our leaders in DC claimed.

Everyone winced as they turned on the televisions early Monday, wondering how low foreign markets and US futures were.  When the picture came into focus, the wince turned into a ‘huh’ and a shrug.  Futures were lower but suggested nothing in the league of a calamity.  Not even a rout or an old-fashioned tail-kicking.

Believe it or not, it was more akin to a pullback after a nice upside bounce off of higher support, a bounce that ran into some resistance and faded some.  Indeed, futures were lower and stocks opened lower, but they recovered from the bell and rallied back to flat and even positive in the afternoon session.  Sure they didn’t hold that move, backsliding in the back half of the session, but they recovered more than half their early losses at the close; not bad intraday action.  Hardly the calamitous action predicted, though if the dire predictions has not been made and the ‘whew’ factor not so big, the day’s action would be viewed overall as negative in that SP500 and NASDAQ were again stymied by their near resistance, the February high.

NASDAQ -0.56%.  SP500 -0.56%.  DJ30 -0.70%.  SP600 -1.07%.  SOX -1.34%. NASDAQ 100 -0.22%.

THE NEWS

It was not only about the debt ceiling debate though that is proving quite interesting.  The Friday summons to the White House to the President’s ‘underlings’ in the Congress.  The weekend negotiations that left the White House out and almost had a deal on Sunday.  Treasury Secretary little Timmy Geithner said the President could not, by law, use the Fourteenth Amendment to raise the debt ceiling.  Tonight’s attempt by the President to show he is still in control at another press conference will likely be another finger pointing campaign-like speech versus a President’s leadership speech, predicting financial meltdown once again.  Ah you have to love sausage making.

EU:  As noted, Moody’s downgraded Greek debt again, opining that default was ‘likely.’  Nonetheless, the euro rallied versus the dollar.

Earnings:  Gushing forth but not enough Monday morning to push SP500 and NASDAQ through the February peak.  Of note, RIMM announced it would cut 2K jobs.  Lots of earnings after hours, however, will provide more fuel with TXN and NFLX guidance coming in light, while BIDU and BRCM announced results and are up nicely.

Indices:  Again, NASDAQ 100 was the strongest as AAPL and other large cap techs advanced or at least held their ground on an overall negative market day.

TUESDAY

Earnings and Economic Data are the drivers Tuesday.  Oh, and the budget issue as well; will have to see what the President lobs out of the White House tonight to see just how incendiary things get.  The Friday speech did not bring about the carnage apparently anticipated, so why not give it another try, right?

Case-Shiller is always important, and Consumer Confidence and New Home Sales are even more so.  Earnings are running full tilt and while much will be made about NFLX, it is not going to impact other retailers.

Here is where the market stands.  A better than expected recovery rally in the trading range in late June to early July.  A rollover below resistance, then a higher low at the 50 day EMA and a bounce off same on NASDAQ and SP500.  That bounce has again hit resistance and is pausing, perhaps stalling.  Key test without question.  There is leadership still in good shape as noted the past several reports.  Semiconductors are attempting to recover and provide some leadership, and even some financials are thawing from their long deep freeze.  The market could use new batches of leaders to bolster energy, technology, healthcare.  We are watching these areas, have some plays on them, and will be ready with more.

We picked up some downside given the proximity to the peaks and the hesitation.  Never hurts at the top of a range to move in when stocks that are showing weakness start to roll.  Thus the buy on SCHN as it broke below the lows in its recent lateral test below the 50 day EMA.  We will continue looking at some downside but also there are those areas that are trying to emerge as new leadership groups as the rebound has continued.  We will have some of those plays as well, and if they show the moves then we will move.

The market is in a range so you play the range (hence some downside positions) but also watch for the next leaders in an upside move.  If they show up and break higher, then the move gains new life and we get new good buys that make us money as they break upside and run.  Yes there is earnings concern and the President/Congress/Treasury Secretary dance continues, but we are positioned with good plays both ways and good stop points, so when the market makes its break we are in good position to take advantage of that move.

Jon Johnson
Stock Splits & IH Alerts, Editor
InvestmentHouse.com