Indices Rise Ahead of Technology Earnings
The market blasted higher by a percent yesterday. For the SPX that marked the 10th positive session out of 12. In fact, the SPX has only recorded four down sessions in the past 19 tries.
As I have mentioned before, October 4 was a major low and November 25 was a major swing low within that bullish phase. In addition to those two important support zones, the low on December 20 also marked an important low for SPX. In the intermediate term (2-3 months), the December 20 low represents the line that, if crossed, would confirm a bearish trend. But until that occurs the bulls rule.
In the near term (1-2 weeks) the picture still favors the bulls. The weakened dollar and strength in the euro (which still has another percent upside from here) was able to push SPX to 1301 resistance this week. Then earnings from big banks like Wells Fargo (NYSE: WFC) and Goldman (NYSE: GS) were able to rally the index past that resistance zone yesterday.
I incorrectly tried to time a top in the market on Tuesday after I saw weakness in bank stocks, notably Citigroup (NYSE: C) and JPMorgan (NYSE: JPM). But yesterday, both of those stocks reversed course and moved higher. The entire sector moved 1.5% higher too, which led most other groups.
As long as the financials hold their leadership, SPX should have no problem rallying up to 1332. But the real question becomes: how to trade this move.
While I continue to favor the bulls, the near-term conditions are ripe for a pullback. The selling pressure picked up at 1301, but successful bank earnings enabled the bulls to tear through that resistance zone.
Now that 1301 has been conquered, 1332 (2% higher) is a very real target. But as mentioned before, SPX is overbought and moved higher with unbelievable reliability over the past three weeks. Late January is also a rough period for stocks. Based on historical data going back to 1998, the indices closed positive one time between MLK Day and the end of the month. I think there is a real possibility the SPX moves back down to 1250 (5% lower) before the next big bullish advance.
As much as I don't like fighting the trend, the more profitable opportunity is to the downside. If the TradeMaster Daily Stock Alerts portfolio were stuffed with longs I would hold them and not be in a hurry to sell. But adding new positions here is risky. Obviously, being bearish here has its own risk, but the downside is larger. My one bearish trade, GLNG, from the weekend video has fallen tremendously well this week, and more stocks are likely setting up to make a similar descent.
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