The market hung in there today hoping that Mr. Bernanke would somehow bring more good cheer and free dollars down the chimney, but that wasn’t to be at all. He said the same nonsense he’s been saying for a long time. He did add that inflation was a bit higher than hoped short-term, but no worries, that’ll just magically go away in time. As if he didn’t know QE one after the other would bring inflation. Yeah, sure. Anyway, he didn’t say anything we didn’t already know, and, thus, the market reacted with a yawn as one would expect, since he has basically fired every last bullet under the sun. That is, until he invents the next one out of desperation. Once he spoke, the market started to very, very slowly fall a little bit at a time. The key was, even though we were almost oversold on the short-term index charts, it really showed no interest in bouncing very much. The sign of a market was not in the very best of moods these days. The bears remaining in control throughout the day as resistance was tested but not taken out.
So now we turn to tomorrow night when the two biggest Nasdaq leaders report in tandem. Apple Inc. (AAPL), and grossly over-valued Amazon.com Inc. (AMZN), give us the news on how things are going. AAPL is fairly valued but vulnerable based on the daily chart. AMZN is ridiculously over valued with a P/E of 280. AMZN better be perfect, or it could get ugly for them. If both AAPL and AMZN report poorly, it could hit the market very harshly. They could both report well, so no one knows what’s coming, but they better be real good folks. The market is not in a good mood when it comes to earnings misses these days.
Just today we saw slaughters in Norfolk Southern Corp (NSC), Buffalo Wild Wings Inc. (BWLD), Tempur Pedic International Inc. (TPX), and Netflix, Inc. (NFLX). When the market was rocking higher, these misses were forgiven, but that’s not the environment we’re in here, so you deliver or you get returned to sender. If the bears want something to pounce on it’s those earnings reports coming tomorrow night if they miss. We shall see soon enough.
Let’s discuss where the market is and why it’s critical for AAPL and AMZN to come through. If they miss, there’s a load of stocks related to them–the food chain if you will, that will be adversely affected. They are not stand-alone stock reports. So man will be affected, whichever way it goes. In addition, they are very heavily weighted stocks, and with the market on breakdown below up trend lines and 50-day exponential moving averages, bad news will take the markets very far below these key, once support, but are now resistance levels. 1420 and 1430 the levels on the S&P 500.
If we start printing well below 1420, it’ll take a strong rally just to back test. That’s not good news for the short-term at all. It’s not bearish bigger picture unless we lose the 200-day exponential moving averages with force, but it would make the short-term difficult at best. A lot of pressure is on these two leaders to come through for the bulls tomorrow night. Nothing that happens in the market is really relevant tomorrow as the real action will likely take place over night. Be prepared.
Let’s take a technical look at this market. Yesterday, when we broke below the up-trend line, that’s a one year line to boot, the market came back and tested just below, the level being 1420 with the afternoon high 1419. Today we rallied off oversold and the high was, you guessed it, 1420. That’s a double test. Now we’re headed lower as evidenced by today’s late afternoon action, the bears not allowing the bulls to take back what they worked so hard to capture. That is definite classic technical behavior that shows the tide has shifted from a bullish stance to a more bearish one for the short-term.
In addition, the daily RSI’s on the critical-index charts, after spending four full months above that key 50 level, have now all lost that 50 level, and are trading forcefully below it. In fact, they’re now in the upper 30’s. That too is a confirmation that the short-term has turned decidedly more bearish. After spending so many months in the green it now seems the bears want their time in the sun and with those RSI’s well below 50 now, just getting back to 50 will be hard to do for the bulls. That level should stop the buying until the market is ready to shift again over time.
With more and more stocks getting hit very hard to the down side on their earnings reports, this too will make things more difficult for the bulls as more stocks are unable to get the necessary footing to blast higher. We watch carefully to see if AAPL and AMZN can lift the market, but if they can’t, a swift move down into the 1300’s on the S&P 500 is in order. Again, this doesn’t mean the bigger picture is hopeless. Not at all. In fact, the bull-bear spread is already down to 13.7% from nearly 30% just four weeks ago. It won’t take too much more to get us below ten percent. That’s when you start looking for a potential bottom. All of that in time, but for now, the onus is on the bulls to take away the momentum the bears have built up. Short-term we are clearly in a down-trending environment.
Peace,
Jack
