Nasdaq Snaps

Stock-Markets / Stock Markets 2011 Jan 20, 2011 - 05:33 AM GMT

The market has been needing to sell and today it finally did. The Dow held up because of International Business Machines Corp. (IBM), but the S&P 500 and Nasdaq took it on the chin today, especially those tech stocks in the Nasdaq. Where to start. Let's start with Apple Inc. (AAPL), the most loved stock on planet earth. It fell hard yesterday early on when the news came out that CEO Steve Jobs is very sick again. It recovered beautifully in anticipation of its earnings report that evening. The earnings were out of this world fabulous. The stock ran up and was about to move to new highs. With such great news it was bound to keep running up. Not the case. It snapped down. It closed red after being up over ten dollars. A topping stick for the foreseeable future.

This allowed the NDX to fall hard today as many other stocks in the world of the Nasdaq took it hard to the down side today. Priceline.com Incorporated (PCLN), Netflix, Inc. (NFLX), F5 Networks, Inc. (FFIV), and a whole host of others. One by one they blasted lower. That's the world of technology.

Now on to the world of the financials, and it wasn't pretty. Goldman Sachs (GS) warned for the first time on revenues for as long as I can remember. The stock crushed over eight dollars today. It's broken and will likely soon lose the 50-day exponential moving average. The Direxion Daily Financial Bull 3X Shares (FAS) got smoked today. That's the ETF for those financial stocks. Wells Fargo & Company (WFC) also missed on their earnings report, and it took a hit as well.

Let's now move on to the world of the commodity stocks. Gold failed with a black candle while back testing its lost 50-day exponential moving average. Stocks like Walter Energy Inc. (WLT) and Alpha Natural Resources, Inc. (ANR), big froth stocks, have been crushed over the past week or so. Today was no exception off their intraday highs. Everywhere you go you see stocks snapping down. This is the process of starting a market correction. Not a longer-term sell signal, but the start of a correction. Bottom line is stocks are snapping, and thus, you need to be aware of jumping in where you shouldn't for a while.

After hours we saw yet another leader go away for a long time. F5 Networks, Inc., which has a valuation well beyond what it's worth, got killed. Down over twenty dollars. The price you pay for holding on to froth in to earnings. Many careers ended tonight. Not worth the headache. Greed kills. One by one over time these froth stocks go away. It's incredibly dangerous to own stocks in to earnings, but if you have to, at least hold stocks that have lower P/E's so you can take out the risk to some degree. I have no sympathy for anyone who plays this game from the perspective of greed. No crying when you hold a massive P/E stock that's pure froth in to earnings hoping to score the BIG one. You get what you deserve. Too many lose the reality of what this game is supposed to be all about. Avoid those stocks folks. Do what you feel is appropriate but understand the risk if you get smoked.

The market is going to need time to get itself together before it can make another strong run higher. That just won't happen for a while as many stocks are broken. They will need weeks to months to repair themselves. We are losing more and more leaders daily here, thus, you are all going to need a lot patience if you want to play to the long side with any aggression. When you lose lots of leaders you are entering a phase of the market that will need to find new leading froth stocks, and trust me folks, they will appear.

Good earnings reports are still being rewarded and it's those stocks that will emerge over the next several months. Patience as that process takes place. The biggest disappointment this earnings season is coming from the usual place where we have seen weakness in the past, the financials. Some good ones but bad reports from leaders Northern Trust Corporation (NTRS), Goldman Sachs (GS) and Wells Fargo & Company (WFC) along with Citigroup, Inc. (C) will make it tough for this sector to do well for quite some time. I wouldn't be loading up there folks.

Strong support for the S&P 500 comes in at 1269 where you have the 20-day exponential moving average. After that we have trend line support at 1250. Then we look for the big one at 1240 where we have the key 50-day exponential moving average. 1227 is next where we have the November highs. One step at a time and I don't think you'll just see the market go away. It'll fight as we're in a bull, thus, expect up days as we slowly, but gradually, unwind very overbought daily and weekly index charts along with a 35.1% bull to bear spread. I don't think we go lower than the 50-day exponential moving average as we correct, but again, you can get killed if you play inappropriately. Slow and easy in this type of market. Let things come to us.

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

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