Big Upside Open Cannot Hold to the Close
- No bad news from Europe, US earnings palatable, and stocks, well, just manage a gain.
- Big upside open cannot hold to the close. Of to lunch for that matter.
- Earnings focus on financials to start the week and they are mixed
- New York PMI shows manufacturing recovery continues.
- Stocks still in position, looking for more upside, looking for earnings to provide a catalyst.
Stocks start the week surging, just forget to hold it to the close.
There was no bad news coming out of Europe over the long weekend. Given that the downgrade occurred on Friday, the market had plenty of time to digest the news over the weekend. Indeed, there was decent news out of Europe as Spain produced another bond action that found solid demand and pushed interest rates lower. Very solid action coming out of Spain over the past week, and that continues to buoy spirits with respect to the EU. That hardly means that those countries are out of trouble (far from it), but there was no bad news. No bad news was good news, and the stock market was ready to rumble early on Tuesday.
The futures opened well to the upside and stocks looked solid. Unfortunately even the futures presaged the market’s action. The futures came off of their highs almost immediately even with a very solid New York PMI, the manufacturing index out of New York. The manufacturing indices are very important indicators of future economic activity. Even though the New York PMI was much higher at 13.5 when 10 was expected, and only 8.2 in February, the market just could not hold a big move. It did not roll over and tank, however. Stocks started up much higher with the Dow up over 160 points. The problem was that instead of the nice low-to-high action seen in the market over the past several sessions action that has been the hallmark of this rally and has been somewhat volatile the market put in a high-to-low move on Tuesday to start the week. A little bounce late in the day put a better finish on the session, but it was still not a great move.
Stocks did close to the upside, no doubt, but there was a problem with the wanting to hold the moves and continue to buy in as stocks broke to the upside. For instance, the SP500 continued to the upside with a strong surge, furthering the move above its October high. That looked super. There was nothing standing in the way of the indices; as I said, there was no bad news and even some good news. They could not hang on, however. They simply were not ready to make the next break.
Remember, the pattern has been a big surge higher early in the week, followed by a lateral move the rest of the week. We got our surge higher, but it was not able to hold the move to the close. That is a bit of a change. We have to watch that because buyers have been willing to hold the gains when they start higher. They have been willing to step in when the market has started lower. Today the market started higher, but they did not want to hang onto their stocks. That is something of a change in character, but it is also just one day. We cannot pin everything on one day.
SP500, +0.36%; NASDAQ, +0.64%; Dow, +0.48%; SP600, +0.3%; SOX, +0.46%
Everything was up across the board, particularly the NASDAQ 100 stocks. They posted the best gain with a 0.9% move as AAPL gapped to the upside and investors continued to look for large cap tech. It is a newfound investment sector after it struggled and did not look too good on the recent move to the upside. They were doing much better to start the week on Tuesday.
There were also earnings out that moved some of the stocks. Earnings from C failed to impress. The stock gapped lower and closed at the 50 day EMA. On the other hand, WFC produced a solid beat on earnings and revenues the bottom and top line. It rallied. Similar to the stock market, however, it was unable to hold the moves and faded back. This week is heavy with financial institution earnings. Frankly, it is heavy with earnings from every sector in the market. This is one of those weeks where the floodgates open and there are more earnings out than you can shake a stick at. That will continue for another week to week-and-a-half after this week. We will get flooded with them.
At this time of year earnings can act as a catalyst and send stocks to the upside. They can also act as a catalyst and send stocks to the downside. Typically the move after that initial reaction is counter. In other words, if stocks move up on the news and everyone is excited about the early results, that lasts for a week or two, and then the mojo runs out and stocks trade the other way. The market has rallied up into these numbers. Sometimes that means it pulls back when they hit.
Today was disappointing. I thought we would get that bump we were looking for as WFC posted strong results. It did not hold and was not able to continue the trend, so to speak. That has us watching what is happening. Indeed, we took quite a bit of gain off the table given the action. We banked some gain in HUM. It gapped upside but could not hold the move. We also banked some gain in OXM. It continued a nice run and was approaching the target, so it was time to pull the trigger. STX showed a doji after a nice run. There has been a lot of negative press on the stock lately, saying it is time to bank some gains. We took a bit off the table, but we are leaving some because the stock looks very strong to continue to the upside. We took gain on ARAY. Strong move to the upside, it was closing off of the high, and it was near our target. We pulled some off of the table. We use big moves to take some gains. We also picked up shares of stocks such as AAPL. It gapped to a doji. It was not exactly a favorite move, but it was not bad. We put in a buy on HOLI because it was continuing a very solid break to the upside.
It was a day to take some gain and pick up a few positions. It was also a day to close out those laggards that did not come along for the ride even though stocks were up early.
WEDNESDAY
There are more earnings and economic data on Wednesday. The PPI is out before the open. The Mortgage Index is also early in the morning. That is followed by Industrial Production and Capacity right before the bell. Then the Housing Market Index is out a half hour into the session.
We have quite a busy day ahead. We will have earnings out the wazoo (that is an industry term). It will be fast and furious, not to make a play on the debacle with the guns that were sold to Mexico. There will be a lot of action. We will be taking some off the table before earnings. We will let some ride through, taking part off ahead. We have expiration on Friday in the mix as well. There will be a lot of things happening.
We are still looking to play some upside stocks, no doubt about that. I have talked about some of them. Some of the medical stocks look good. JAZZ looks like it could still make the break to the upside. You have to find stocks that have room to run before earnings come out. You catch that run of things looking great and all the stocks run up together on the initial earnings. You can take some gain before earnings come out or catch them afterward, which is really my favorite time. There are many types of plays you can make off of those.
JPM has already announced earnings. It went down, but it was not clobbered. You could play those post-earnings plays, and they could have some big gaps after them as well. You can really cash in on the move after the earnings come out. Then you are a lot safer because you will not get blasted by those results that can take you out of the play and ruin your day before you even get going.
Earnings season is still young, so those gaps are young. We are watching them, but they need to set up a bit in most cases before we can put them on as a play. We are watching for them. If we get them, we will put them on. There are still many stocks that could be potential plays and catch us moves to the upside. We are looking at several that do not have earnings until fairly deep into February that have room to run. Indeed, we are still looking at some of those afterward that have already made their announcement. We can jump on them if they give us a move and take advantage of it.
We are getting further along in our thesis of how far this market will run. If we have more big moves, I would be quite happy. We got a good, solid move upside early today, and we used it to take some gain. If we get other good moves to the upside, we will use it to take some gain. We will also pick up positions that we feel can make us money because they are telling us it is time to buy.
Even though I think, overall, the market may be getting closer to the end of this particular leg of the run, who knows what happens after the “gist” of this earnings season is figured out by the investors. They may decide to dump, and maybe the move will be over at that point. We will have to see. We do not see breakdowns across the board. Some stocks are not participating in the move, and that is disconcerting; we are getting rid of them. There are also stocks getting roughed up. That is part of the earnings season. Overall, you have to look at the quantum of the stocks that are gaining. Are they coming from a big-enough segment of the market that investors can put their faith in it? The key is how investors react. We will keep watching.
Even though we had a down day today (I call it a down take because it was a reversal even though the indices closed upside), we still have the same character of the market in place. That means we are still looking for a continued move upside. If we see stocks in really great positions, we will not turn away from them because we have some preconceived bias that the move will end at a certain time. I might as well say that the world will end on the December 12, 2012. That would not mean a damn thing. Right now it all depends on what the market is doing. If they keep telling us to buy, we will buy. We will buy with caution, however. We will not go in full bore. We will pick and choose, get the best and ripest that can make us the best return and are in the best position. We will take advantage of those.
That is my long-winded explanation of how we will do it; I apologize for that.
Stock Splits & IH Alerts, Editor
InvestmentHouse.com
