Technology Stocks Slump after Cisco Reports Average Earnings
The market attempted to rally to fresh highs yesterday but failed. I entered the week saying, “This week the SPX should have strong support at 1332 and 1301. A break below 1301, especially early this week, is reason to be bearish. Conversely, a move above 1355 is reason to be extra bullish.” The bulls could not take out 1355 and now the bears look ready to test 1332.
Volume was markedly higher and internal selling pressure was the highest I’ve seen since April.
This has really been a difficult market since February. In fact, the last time the market conditions were this treacherous to navigate was the Summer of 2010, which is an interesting comparison.
During that period in 2010 the market was in a clear bearish trend following the crash from May. As SPX hit its long term support level a six month battle between sellers and buyers ensued and all market participants were compelled to take either the bulls or the bear’s side. It was an interesting call to make. On the one hand the market was up against strong support that favored the bulls. But on the other hand, the bears had ripped the market 20% lower already; there seemed no reason to believe they could not take the market another 20% after a few months of consolidation.
In TradeMaster the decision was made to favor the bulls. Although the bears had shown unusual muster from May through June, it was my belief the bulls would hold their long term support area and rally higher.
Accordingly, we traded mostly to the long side for most of the summer. While that got us in trouble a few times, ultimately it gave us the edge during the break-out in August since we were already positioned long. And aside from a few brief interludes since, I have remained a firm believer in the bull’s ability to continuously pull the market higher.
But here we are today, nearly a year later and left in a similar scenario – only this time it's in reverse. The bulls clearly have control of the market’s prevailing trend – that cannot be denied.
Given that the bulls control the trend, there is every reason to believe they will continue to push stocks higher. Sure, there could be more consolidation forthcoming, but the current trend points to more highs for the market. But, the bulls are up against 1350, which is a major resistance level. If there was ever a price where the bears could turn the market before 1500; 1350 is it.
Fortunately in this game we play – trading – no one will label you Benedict Arnold if you switch loyalties. In fact, that is what you are supposed to do. A good trader admits defeat quickly and takes sides with the winner.
At this time I’m sticking with the bulls, but my allegiance wanes.
Cisco (Nasdaq: CSCO) reported solid earnings last night which beat analyst expectations. The stock is down over 5% this morning due to a downward revision to earnings next quarter. CSCO looks cheap and I would recommend a long term position at today's low price.
Watch List
The TradeMaster Daily Stock Alerts watch list is bullish again - and this time it's on technology and China. To receive daily alerts each day before the market opens and for a full list of our trades and video of our current stock watch list CLICK.
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