1426/1441......
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When you're dealing with Intel Corporation (INTC) and International Business Machines Corp. (IBM) after hours and Goldman Sachs (GS) before the bell, there's risk for sure. Earnings is really what's left for this market in terms of future direction. Events from around the world are pretty muted right now. You just don't hear much anymore regarding defaults or Euro headaches. With the Fed governors around the world promising cash at all costs, it seems those issues are more on the back burner now rather than up front, in your face news.
So now the market turns its attention to those big earnings reports that start in earnest this week. Make no mistake about it, those reports will be market movers. If we can get good news from the likes of Intel, Goldman Sachs and IBM, then it's likely that the market will try decently higher yet again. Night after night will produce some very different results. That's the way it is during earnings season. You have to accept that as part of the game. One day is good and the market rushes up. One day it's bad and the market rushes down. Whipsaw in the base now forming off the double top. A very interesting week coming up and it all starts tomorrow morning.
Let's discuss those earnings reports that are now upon us. What to expect. Well, and I've talked about this before, the CEO's of some very large company's we hear about all the time are smart. They know when the economy isn't great they need to lower the bar of expectations. They tell us that things aren't going that well, and thus, downgrade the future results to come. Of course, they are hoping their prognostications will be wrong and that things won't be all that bad. If that is the case then when they report, they'll be able to surprise on the up side.
Sure, they take a hit when they first warn, but in this very forgiving market environment, they know they'll be rewarded far more heavily if they raise guidance than they'll be hurt when they warn. They take the risk. If they're wrong about hoping things will improve, all they'll be doing is reporting on the lowered guidance they already gave. The market won't hit them too much harder. The time is upon us and now we get to see if those CEO's made some very smart decisions taking a little pain three months back in the hopes that they'll be given a big cheer this time around.
The market hasn't been fun for quite some time now. Working on five weeks. Five weeks without sustainable upside can really play on the psychology of this market, which is why I'm very anxious to see that bull-bear spread report come Wednesday morning. My guess is we've gone from 30% four weeks ago, in to the upper teens this week. I am hearing more and more folks talk negatively about the stock market. How it really never goes anywhere in the bigger picture, and here we go again. This sour attitude has helped the S&P 500, Dow and Nasdaq, at their lows intraday today, to post stochastics on their daily charts as low as 2.
Again, these are daily chart readings, not 60-minute readings. It tells me the job is getting done in terms of unwinding sentiment and getting the oscillators set up to try and move higher in the not too distant future. Yes, wean still fall another few percent, but that's no guarantee any longer. RSI's are neutral now to even a bit below neutral. MACD's have unwound fabulously. Now is not the time to be getting bearish, even if we do fall another few percent lower in the coming weeks. The job is getting done step by step folks.
So again, it's all about 1426/1441. Whichever gets taken out with some force will allow, one would expect, a more directional move for the short-term at least. Either way, even if it breaks lower, it doesn't make for a bear market environment. It simply allows more unwinding, which, in the bigger picture, is never a bad thing. The next few days will be critically important.
Peace,
Jack
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