Market Sluggish After Big Monday Upside
- Market sluggish after big Monday upside, no new catalysts.
- SP500 taps 1200, NASDAQ ready to bump the top of the range.
- NFIB small business survey says confidence is up and some herald the ‘turnaround.’ It is up, but scraping off a 13 month low.
- Slovakia fails to approve the new EU bailout fund, but after changes are made it will pass.
- Alcoa lowered its guidance and still misses on earnings. While that may be normal for AA, there could be more real surprises ahead for the bulls.
- Stocks have run up to earnings, closing in on the top of the range. Will earnings provide the next reason to rally or reason to take the gain?
- Some say the bottom is now in and indeed there is room to rally further, but longer term patterns are not comforting.
A bit of a hangover as the market takes a breather.
Stocks were up more or less on Tuesday. More if you were on NASDAQ with its 0.66% gain versus the Dow where stocks were down -0.15%. Stocks were not that much higher and not that much lower. They were a bit hung over after that huge upside on Monday that saw the indices log 3%+ gains. Very strong move. Without a new catalyst, they were not ready to continue to the upside. That makes sense. After all, the indices have rallied very sharply for five days, and are approaching prior resistance levels. When that happens, they tend to get a bit standoffish. They want to rest and take a little time to see if they have a reason to continue to the upside.
SP500 tapped at 1200. There is more significant resistance at 1220-1227. The August intraday peak is right around 1230, and 1227 is the November 2010 peak that held the index in check since it tried to bounce in August. NASDAQ bumped at 2600. It did not quite get to that level, closing about 15 points off of it. That is the late-August peak, and it is coincident with the June low. That is an important level that NASDAQ is pushing toward. You can see another strong move by a leading index, but it has come a long way in a short period of time. It is at resistance. We are now at earnings season, and it has to find another reason to continue the move. Perhaps earnings will provide the reason to continue to the upside.
I have a feeling (based on what I have seen from the export numbers) that earnings may not be as good as some are anticipating. Today and yesterday I heard a lot of analysts that were more into wishful thinking that factual thinking. They say they think earnings will be better than expected. Perhaps so, but I do not believe they will be nearly as good as many anticipate. As seen after hours, AA missed already lowered earnings guidance. You can hardly take AA as your lead example to support a theory. As I said in the last alert, that is like pointing to Congress and saying that because there is corruption in Congress there must be corruption in DC. It goes without saying, so it is not real proof of anything. But you get my point. We can discount it AA, but there are other key stocks that have already warned or said business was slowing, such as FDX.
It is somewhat instructive that the indices continue to drift more or less higher with the lack of a catalyst and after a good rush to the upside. In other words, they did not just roll over in fear of what was coming. That is a good sign of a continuing upside bullish momentum. That is how good markets whether moving upside or downside continue to indicate that they want to see the same trend progress.
Stocks started the session sluggish. The indices were down, but they reversed and rallied. The zenith of the session was early on, in the first hour. Then it traded back and forth. Beautiful range trading for the rest of the session, closing it out with either a slight gain or a slight loss depending upon your index of preference.
SP500, +0.05%; NASDAQ, +0.66%; Dow, -0.15%; SP600, +0.37; SOX, -0.3%.
WEDNESDAY
There is some scheduled economic data. We will get the FOMC minimums I am pretty sure that will be the case. We will also get the MBA Mortgage Index. That is the weekly read of how many mortgages are out. Mortgage rates hit record lows, but no one can be approved, so it does not really matter.
There is a bit of scheduled news, and there will be a lot of reading the tea leaves with respect to AA’s earnings after hours. It did miss. It was a disappointing report. As I said before, what is new when it comes to AA? What is so right about AA is that it is so wrong on its earnings all the time. It is down after hours. The SPY was down after hours, but it has rebounded. It was worried about the Slovakia vote, but it came out and said it will pass. I do not know when it will have the next vote, but it will pass. I do not think anyone is that worried about whether the jobs bill will pass. It is a stinker anyway. No one believed it would pass, and it is really not going to do anything but throw good money after bad, as I said.
The only thing that would significantly help the stock market right now would be some kind of new Quantitative Easing where liquidity would be pumped back into the system. It would be pushed into the financial markets and other markets, and it would raise the asset values once again. The Fed does not want to go down that road because I think it is worried about inflation this time. If forced, it just may do it. After all, Mr. Bernanke says that the Fed stands ready to do what is necessary to help us through these tough times. If they had really worked, I do not think we would be having tough times right now.
We have AA and its lowered earnings guidance. The problem is, I do not think that will be the only company that misses lowered earnings guidance. Things are expected to be softer. At the same time, others are feeling more the recent rally than rational thought by saying they think earnings will be better than anticipated. They are feeling the rush of the market higher, and they are mistaking that for a market that is pricing in better results. What did I say a week or two ago? The market had pulled back, and it was ready for a rebound into earnings. It has made that rebound. The question now is whether earnings will be good enough to act as a catalyst to keep the market moving. Normally it would be a good setup. A little pullback now, and then a break higher again with earnings. But it is not normal because economy is not normal. There is a big question mark as to what the market will do at this point. I am concerned that some big names may not provide enough upside enthusiasm to continue the run higher.
I believe there is room to rally further, and I think stocks can rally further. SP500 has room to move. I do not think all stocks will move up this time. I think the big move as occurred for most stocks, and now it starts to get selective. We are already seeing energy stocks stalling their moves. Energy has made a good run. I think it will stall out again as well. Again, this is just what I am thinking; the market will show us what will happen. I am just trying to tie this in with what the economy is doing as well.
We have some more room to the upside. We can get those bounces. We can even have some upside plays to make along the way. The question is, how much? We do not want to add too many upside right now. We are adding some, and we are letting other positions run. We will continue to do that. But we will also have to watch for the downside. We have been doing that. We have some plays, and we have taken some positions. Some of them are hurting us, but we have also made some good money. A lot of them are still in the money even with this bounce. We are looking to pick up some more as they roll over.
The market will show us which way it will go. I am just being cautious. I am a bit concerned about earnings, and I am always concerned about playing at earnings anyway. Stocks can move a lot before they revert back to where they were originally headed. They can also change their trend altogether. It still does not mean they are a good buy until they set up again. On Wednesday we will see how close this market gets to that next resistance before it has to make a more significant decline.
