Earnings to Impact Stock Market Trend

Stock-Markets / Corporate Earnings Oct 14, 2009 - 01:20 AM GMT

Tis the season folks. Will we have Santa or the Grinch. As we sit in this annoying 1060 to 1080 S&P 500 gap we are wondering if it will ever break out or will it simply fail and ultimately break down. We are going to get our answer very soon. Tonight the real earnings season begins. No more Alcoa's (AA) but the real deal economy stocks are here for review. There's a lot of good news built in thus these stocks better say some real good things or they will get hit. They need to beat on earnings and revenues and do it with real sales and not cost cutting. That will no longer work with their stock prices up 100% or more in many cases.

Besides beating on earnings and revenues, they need to also guide higher or this too will hit the stocks and not allow the S&P 500 to clear that wall at 1080. Intel Corp. (INTC) starts it off but we have other very important stocks reporting this week, especially Thursday. Wednesday we get a huge financial in JP Morgan (JMP). Then we get the real deal on Thursday with Goldman Sachs Group (GS), Google Inc. (GOOG), International Business Machines Corp. (IBM), and Citigroup (C). There will be no doubting where we are come Friday morning, if not tomorrow morning.

I decided to wait until all the earnings were out tonight before doing this report. INTC was very strong as was railroad stock CSX Corp. (CSX), another important leader in a leading sector. CSX was strong and thus we have a double dose of good earnings news for the market to take in overnight. The futures are higher but guess where the S&P 500 is trading after hours folks. Yep, 1080. We closed at 1073 thus there's nothing wrong with a trade at 1080 as it shows strength. If we open near 1080, this will be test number three and the bears are going to have a harder time with this test as each test reduces the numbers of sellers that wait at these critical levels. The bears are sweating tonight. Lots can happen overnight as we have to see what Asia does and then we have to see what Europe does with this information.

If Asia and Europe hold up, and it's likely they will, then the market is going to gap up and that makes the bears even more desperate as gaps are a bulls best friend at resistance if the bears can't shoot it down early on. They'll just give up and let things run through the breakout area. In the end, it's really only about S&P 500 1080 and throw in Nasdaq 2167. We're a full 28 points away on the Nasdaq and even with INTC, the q's are only showing an 18-20 point gap up there thus it will open below the September 2167 highs. If the S&P 500 can clear 1080, however, then the Nasdaq will get dragged up and would likely make a new high soon. With strong earnings from INTC, the odds are increasing that we'll see a breakout but, oh, let me not forget, we'll be overbought at the gap up tomorrow. Just thought I'd throw that wrench in to the mix.

They tried hard to sell this market off early on today. The futures were lower and never really recovered although they weren't close to threatening major support. We started lower and ran down a bit but recovered well above the key S&P 500 1060 level. It didn't make sense that the big money would try to take things down ahead of the big earnings tonight. The whole week is loaded with big company after big company telling us about how the economy is doing thus it made sense to close in the gap ahead of the fireworks. We went green late morning and then spent the rest of the day slightly in the red.

The Nasdaq closed fractionally green. Another day of nowhere and grind. It didn't really bother me as I knew things were about to change in a big way. Tonight they have. Let's see if we actually have something deeper to play on tomorrow. The close tonight definitely sets the market up to make the move. No excuses. A little overbought is no excuse if the bulls want this. Today was the set up. Now we need the closer to finish up the job.

The rising wedge is poor in terms of longer term resolution but you never know. We have poor divergences in this wedge and it really makes you wonder just how far we can go before this ends with a deeper correction. I didn't say bear market. I said deeper correction. Many important levels need to get taken out before we can even whisper bear market.

The top of the wedge is near Dow 10,100-10,200. At the top, if we get there, you have to short. We'd be so overbought and the Dow alone is now working on its 4th, yes I said 4th, negative divergences. Four new highs in price and four lower MACD's. Normally by the second one we're tanking lower. The 4th one still hasn't done the trick but you need to respect it. NEVER letting your guard down for a moment and I'll tell you why.

When those divergences kick in, it'll be very scary. Very rapid fall in prices. It'll catch everyone off guard. So we respect but we don't stop ourselves from participating as long as the reversal candle hasn't shown itself. We're in longs only and won't short until we hit the top of the wedges or get the reversal candle that tells us things are bad before we ever get to the top of the wedges. Only longs for now would be my recommendation, although, do what feels right to you, of course. So many of you have asked for shorts, but I just won't give in until I see a reason to believe the risk reward is appropriate. The trend is still higher. Stick with it. Let's see if the news from tonight on earnings can propel us above 1080 S&P 500.

Peace
Jack Steiman

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.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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