The week was full of many events that had effects on the behavior of the overall stock market. Most of the action in the stock market was very surprising. It was surprising to the bears, and to the bulls, as both must be shaking their heads, considering the late week news. The market was wondering what would happen over this weekend as the smartest minds were scheduled to gather together to figure out some type of solution for the headaches Europe is dealing with for however long. They surprised everyone by pulling an all-night event last night. They came up with a complicated package that I don’t understand very well. Some of it was met with a positive response, while some of it was rejected. Not the very best reaction for which the masses were hoping. A package of some type nonetheless. The market had an excuse, it seemed, to sell off based on what took place. That’s just the beginning.
Between last night and this morning we had three major earnings warnings from Altera Corp. (ALTR), Texas Instruments Inc. (TXN), and E. I. du Pont de Nemours and Company (DD). They are all leaders of some type. Two are in the semiconductor sector. These three stocks were annihilated after hours. Interestingly, the futures were only down a little. These stocks were not causing a more widespread reaction, which most expected, especially when you’re in a bear market. Overnight, the market actually put in some gains, even though these three stocks all gapped down hard today.
As the day went on, they all put in very bullish reversal sticks. That’s also something you definitely don’t see in a bear market environment. The market gapped up and ran some as they went along. They closed off the highs, but the action was solid, even though we’re still ten points below the major breakout at S&P 500 1265. The bears have to be confused as to why both Europe last night, and the warnings last night and this morning, did not kill equities. The bulls have to be thrilled for the moment, but they still need to get above 1265 before losing 1225.
Markets are interesting, no doubt. You can garner insight from them based on how certain events are handled by the masses, especially the big money. In bear markets, when a company warns on their earnings, stocks get annihilated. No mercy. Taken out back and put out of their misery. Large volume accompanies the slaughter with the stocks becoming broken technically for a very long time. Months at a minimum.
TXN, ALTR, and DD were ready for the big one, and early on they were getting their collective heads handed to them. Things looked bad, to be kind. Out of nowhere, these stocks rallied hard off their lows putting in bullish reversals. It was shocking, really. No one saw that coming. Large volume was part of that recovery making it even more substantial. When this behavior takes place it basically means the bear is resting for a while. If the bear was raging now, they would not have recovered such as they did. You have to take it to mean that the bulls are gaining more traction for the very short-term. It could turn out not to be that way, of course, but that’s what you have to take out of it.
The news out of the United States is improving slowly but surely. Some crafty numbers by our Government, especially the way they incorrectly came up with the unemployment rate at 8.6%, because they don’t count those who have totally given up. Claims are slowly dropping. Retail sales are better than thought possible. Manufacturing is weak, but on the improvement side, for sure. Housing isn’t all that bad. In other words, you can’t argue, we’re not in the worst of shape. Not healthy by any means, but not in a dire position either.
If Europe wasn’t hanging over our heads we’d be in an uptrend for sure. That situation isn’t going away, but if it’s under control for a little while we could see some decent upside short-term. That’s probably not true long-term, but at least some decent upside for the next month, or so. That won’t be easy either, but the bears seem to be backing off based on what I’ve talked about earlier in this newsletter. This is the major reason things have held up. Quietly, since Europe is more of the news these days, things aren’t that terrible here. So, let’s hope we can continue that trend for a while longer, and give the bulls a little breathing room.
It’s all about S&P 500 1225 and 1265. That large gap up-day when the Dow was up 490 points with the Nasdaq up 104 points is acting as strong support on pullbacks for now. Large volume was part of that huge up-day, meaning big money supported it. It won’t be easy to get that money to back off and stop defending that move. It’s going to fight for sure. With the action today I think 1265 is likely to get taken out before 1225 gets taken down. No guarantees, of course. No one knows what news will come out from abroad but the action suggests 1265 is first. If we can clear that then we try to move back to the old highs at 1293, and then possibly 1325. That will be really tough to get to, but we shall see. For now, I think long exposure is best. Let’s see if the bulls can finally make the move next week. The action in some stocks today gives hope.
Peace,
Jack
