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It would seem as if the Apple earnings exceeded most expectations as that report served to lift international equity markets overnight and has led the US market slightly higher in the early Tuesday trade. While the stock market seems to have diverged with the Treasury market, one has to watch the focus of the Treasury market closely, as the Treasury trade is growing concerned that the end of the First time Home buyers tax credit program as that might expose the ongoing vulnerability of the US housing market. Certainly the stock market has caught a bullish wave from the Apple earnings, especially TI also showed better revenues than were expected. With CIT also seemingly catching a break from news of a possible capital loan, the stock market yesterday was clearly hitting on a number of bullish themes and that type of bullishness might be difficult to replicate after the opening salvo today allows the full US market to factor in the after the close favorable Apple earnings news. Perhaps the markets are also being lifted by international economic news overnight, which showed the German PPI to be down and UK gross mortgage lending activity to have risen in September. However, with the housing sector down on Monday, because of the NAHB reading and also because of the fear of the expiration of the first time home buyers credit, the Housing Starts and Permits news this morning will not be totally ignored. We think the short term trend will remain up, but that the US numbers could erode a portion of the bullish bias unless Housing starts and permits show some type of positive readings.
S&P 500: While the December S&P did manage a fresh new high for the move in the early going today, the market doesn’t seem to have a large amount of upward momentum. In fact, fear for the home builders, fears of slack consumer orientated issues and simple residual fears of a disjointed economic recovery activity could leave the market flat footed after its initial upward pulse. While we recognize the markets upward capacity off the Apple news, we also think that traders should make sure that the classic economic outlook doesn’t begin to diverge significantly with the earnings driven outlook. In other words, the bulls look to control, but seeing a contraction in the Housing Starts and permits data could set the S&P up for a rise and failure above the 1100 level.
DOW: Surprisingly the December mini Dow has not managed a fresh new high for the move in the wake of the Apple earnings, but we think that clearly highlights the potential for the upper end of the market to lag behind the lower cap stocks. In fact, big blue chip stocks look to be the most negatively influenced by rising commodity prices and ongoing slack consumer activity. It goes without saying that the December Mini Dow has critical close-in support at the even number 10,000 level, but more critical support is also seen at 9,964. An even lower up trend channel support level is seen at 9,902, with that level rising to 9,931 on Wednesday.
NASDAQ: Unlike the Mini Dow, the December Nasdaq has clearly forged a fresh new high for the move and also for the year in the overnight action. It goes without saying that the Nasdaq is feeding directly off the much better than expected Apple earnings and we suspect that the Nasdaq is set to outperform the rest of the market in the coming trading sessions. Up trend channel support is seen all the way down at 1730.75 today, with that support level rising to 1737.50 on Wednesday. However, in the action today, a more appropriate support level on the charts is seen at 1757.
TODAY’S MARKET IDEAS: Expect some upside extension off the Apple results but unless there is something favorable from the US housing front expect a pulse up and stall after the 1100 level is taken out.
