Earnings Take the Market Higher
The
market began to gather steam yesterday to make a
run towards 1335 resistance. Volume was suitable during the climb higher
and energy stocks led the way. However, the indices appeared somewhat
skittish following Monday’s large decline. Investors fervently waited to
hear earnings results from Intel (Nasdaq: INTC) and IBM (NYSE: IBM) which
reported after Tuesday’s close and CSX (NYSE: CSX) which reported this
morning. Needless to say, all of those companies posted record first
quarter results.
Both IBM and INTC posted record financials and noted that business
spending is expected to increase this year. INTC destroyed analyst
estimates on both sales and EPS and management had a positive outlook for
2011. IBM noted increased business spending and raised full year
guidance. CSX is one of the third largest U.S. railway operators.
Management indicated that a huge increase in automobile shipments helped
results, but a 42% increase in fuel costs took EPS down.
Despite the impressive results, INTC is the only stock to trade
with substantial gains and actually opened up 6.5% this morning.
Nonetheless, the fantastic earnings from all three companies should raise
expectations – and prices – for the stock market today.
The bears had their chance this week to take the
market lower and they blew it per usual. The bulls held support at SPX
1301 and will likely try to break out to new highs. The bears may hold
them back for some time, but my price target for SPX remains 1377 to the
upside. For the sake of neutrality, 1280 is the must hold level for the
bulls, but I do not see the market falling there this week, or even
next.
I will be very interested to see what the break out to new highs
looks like. Volume has been minimal over the past few weeks, which has me
concerned. During earnings season volume is supposed to increase.
Additionally, last week was an options expiration week, which also is
synonymous with high volume.
But the market activity has not picked up. Although the indices
appear ready to blast 4.5% higher, I am deeply concerned about the
market’s ability to hold those highs when that occurs. Average to low
volume readings, like we have witnessed over the past month, indicate low
levels of investor participation. Unless and until volume levels pick up,
we must remain on high alert for a top, but I still recommend you invest
with a bullish mindset.
At TradeMaster
we recently took a long position in Cardero Resource (AMEX: CDY) as
shares found support at $1.75. The downside is minimal since our
recommended stop loss is $1.78. However, shares look ready to climb
higher and back to $2.20 resistance. So the trade-off is a 3% loss for
17% profit. If shares can take out the resistance they have near $2.20
the stock could make a run towards $2.70. The trade-off becomes a 3% loss
for a 50% profit. The ascent should be sharp, and I expect the trade to
play out within two weeks.
Send comments anytime editor@trademasterstocks.com
