Let The Earnings Season Begin...

Jack Steiman from SwingTradeOnline.com at 01/12/10

We've had some good earnings reports prior to this evening but when Alcoa Inc. (AA) reports, that's the official kick off to the earnings season. There have been some great reports and some not so great reports thus far but all in all it has been pretty good. Of course, they're good based on lowered expectations but we have to adjust to how the market sees things, not how our hearts and minds see them.

There are some others of importance this week. Intel (INTC) on Thursday and a very anticipated report from financial giant JP Morgan Chase (JMP) Friday. Both will move the markets. INTC is a true proxy for the real economy. Their chips are in everything and thus a good report from them means demand from the makers of those goods is improving. The market would certainly like that. JPM is considered the best run financial institution in the world with Jamie Dimon at the helm and thus big things are expected there. If things are not good there, the market will think things are very bad in the rest of that sector and rightly so.

See today’s charts at SwingTradeOnline: INDU (Dow Industrial Daily Chart), WLSH (Wilshire 5000 Composite Daily), COMP (Nasdaq Composite Daily Chart), SPX (S&P 500 Large Cap Index), DJUSRB (Dow US Broadline Retailers Index), XTC (North American Telecommunications Index).

This earnings season is particularly important to Wall Street because the market has moved up quite a bit in anticipation of much better numbers thus there better be some solid delivery to those expectations. If there isn't, the market will fall harder than it has since the March 2009 lows. If the news is good overall, the market will likely remain in its confirmed up trend. The time is upon us. Let the fun begin.

We started out today with some good futures that received a boost from the overseas markets last night. Asia and Europe were up solidly. and as usual, our futures reflected that. We gapped up at the open but started to fall back, especially the Nasdaq, as those heavily weighted stocks in the Nasdaq were taking it on the chin early on. Stocks such as Apple (AAPL), Google (GOOG), Baidu (BIDU), Amazon.com (AMZN) and a few others. The day was spent moving back and forth with the Dow leading and the technology stocks lagging. Things improved late in the day which is typical action these past ten months allowing everything to finish in the green except the Nasdaq. However, the Nasdaq did close well off the lows so nothing really bad there. Not yet anyway. The action today is typical in that the market continues to grind higher overall with no real super blast higher out of this long lasting lateral formation.

There is a phenomenon going on now that is showing a clear change of character and I for one am happy about it. The PowerShares DB US Dollar Index Bullish (UUP), or the ETF for the dollar, is no longer affecting the market tick for tick such as it had for so many months. The UUP has had up days that has seen the markets go up and now down days that has seen the market be flat to slightly down. I would be very happy to see that trade disappear in to the abyss and for now there is some hope but I am very cautious about getting too excited. So far so good but I am watching it closely. The UUP threatened to break out of a strong inverse pattern, but for the moment, that pattern has been busted. No guarantee that this will remain the case but the one sector most adversely affected by a strong dollar, the commodity world, is probably happy for the moment about this reality. The UUP must continue to be watched very closely.

We are starting to see some big caps get hit and there's nothing bad about that although many will think it means market death. Not true. These stocks are very overbought and could use a prolonged period of basing to lower to unwind some very overbought oscillators not only on the daily charts but on the weekly charts as well. Not the best combination for more upside although these stocks are loved.
Froth like loved. Not easy to keep them down but we are seeing some struggles there. Many are breaking below their 50-day exponential moving averages. Some have also broken their 20-day exponential moving averages as well. Stocks such as BiIDU are trading below both critical moving averages. GOOG is trading below its 20's but above its 50's. AAPL and Goldman Sachs (GS) are closing in on their 50's. GS closer. AMZN is below its 20's. For a very long time these stocks all traded well above their 20's and 50's so we're seeing some changes in behavior. All of them need to be watched for further erosion. Nothing bad for now and really, but like I said, more selling and even some breakdowns would do these stocks some good. They really do need to unwind. If it can be done mostly from a lateral posture, that's great. No matter what, they do need some real unwinding.

Bottom line remains the same. The market is on a buy signal. The market is overbought. It needs to be played cautiously. It needs to be respected for what can happen if you let your guard down. This is a market that demands exposure but not 100% of your dollars. New plays should be done when things have unwound on an individual stock. Buying overbought for the sake of froth can really hurt you. Be careful!