Bank Earnings and Europe Slow the Rally
The market continued its steep ascent last week. Although no major news came out of Europe, investors continued to buy on potential. And that buying spooked the bears out of any bearish trades. The bulls have the bears on the ropes but have yet to completely take them out.
Despite a monumental recovery from two weeks ago, the bulls have still yet to challenge 1250 resistance. And the bears, for all of their problems over the past few weeks, continued to defend 1220 last week. While I have been very impressed with the bulls, let's remember that until those long term support zones are taken out, we're in a bear market.
Additionally, and this is the scary part; the bulls much like in February, April and June, rallied without a pullback. And when the market rallies without taking a pullback from time to time, it often retraces that rally very quickly and with severity.
The latest rally in the market was initiated with optimism that Europe would come up with a plan, quickly, that increases investor confidence, avoids default and recapitalizes banks. Unfortunately, the sad reality of European policy makers is that they tend to overpromise and underdeliver.
The bulls need Europe to come up with a plan soon. In fact, the market wants a plan in six days; on Sunday. And if there isn't a plan, or at least a good reason for no plan, this Sunday, the rally will implode.
While the market rally began with political rumors overseas, American earnings will play a bigger role in its progression over the next few weeks. Earnings season officially began last week. Thus far, except for Google, earnings haven't impressed - they haven't been bad - but not impressive.
Two more big banks, Citi (NYSE: C) and Wells Fargo (NYSE: WFC) reported earnings this morning. Now that only leaves Morgan Stanley (NYSE: MS), Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC) to report. I don't think financials need to lead us during this rally, but they cannot lose ground either, if the indices are to push beyond resistance zones.
Stocks were slammed this summer. And I think that plummet was undeserved, which means that stocks are extremely cheap. Good earnings and great guidance could help prove that the business world is still on solid footing, which should intensify bullish momentum in the market.
