Finally A Stock Market Catalyst?... Cisco Earnings.....

Stock-Markets / Stock Markets 2010 Nov 11, 2010 - 05:00 AM GMT

The one thing that has been missing for the bears in order to get this market moving lower is a catalyst. The up trend is so locked in place that it needs something to turn the tide in their favor. That has been a struggle for sure. The ISM Report was better than expected as was the Jobs Report last Friday. No catalyst. The market has tried to sell off from severe levels of overbought but has been unable to with any force. Tonight it has a catalyst. Cisco Systems, Inc. (CSCO) reported earnings.

On the surface Cisco's reported earnings didn't seem very bad. However, thanks to the report being just mediocre, they're getting slaughtered after hours. Absolutely crushed for this stock. Shares are already off by 10%. That is very unusual for this stock. It's nailing the futures, especially the Nasdaq futures, as you would expect. The Nasdaq is showing a loss of about 17 points already. Now the bears have their chance, but they must keep these futures lower throughout the night.

Let's see what they can do with it. The market needs to unwind to get those oscillators reset, although it wouldn't be a bad thing for this market to take it on the chin for a few days or weeks.

The market started lower today, which was a follow-through to yesterday's move down. The move lower got the short-term charts unwound and in a more bullish market trend. Once these oscillators get oversold they usually afford the market a bounce back up. That's exactly what took place today. The Dow bouncing back about 100 points off its lows, finding a way to close up positive, although fractionally.

The Nasdaq outperformed tremendously today, but that won't be the case tomorrow. For today though, beta and risk led the way, which has been the normal behavior we've grown accustomed to lately. The bounce back up took away a lot of the unwinding that had begun yesterday and followed through early on today. It's a shame in many ways that we did rally back up, but this is a buy the dip mentality market, and today was no exception. Neither side can declare victory today due to the market needing to sell from very overbought. The bulls may likely have just put off the inevitable selling to come in order to get this market to breathe a little bit.

The sentiment figures came out today and they showed a bit more in terms of more bulls and less bears, but it was minimal and not anything to get worried about from the bullish side of the trade. 25.4% is far from complacency. If we get some selling over the next several weeks we'll likely see those numbers come down to roughly 20% once again, if not in to the upper teens, which is perfect for the bulls.

You don't want to see things get much over 30% if you're a bull, and although we're not there yet, we would get there quite quickly if we don't get some decent selling in the very near-term. As long as markets stop moving appreciably higher it doesn't take long before sentiment erodes to the bearish side, so I think the bulls are in fine shape for now. The longer the better for sideways to down if you want larger future's gains on the bullish side of things.

The S&P 500 has strong support from 1192 down to 1130, which are the 20- and 50-day exponential moving averages respectively. It is very healthy and very appropriate for markets to test the 50-day exponential moving average after a long run higher to the up side. This allows for a full unwinding of the daily oscillators. I am not saying we're going all the way down to those 50's, but it is very possible, and you need to be prepared for that possibility. I guess this is my way, once again, of warning all of you not to get too bullish up here. It would be awesome to get this market down to the 50's, but a test to the 20's is highly likely at some point very soon. Just go slow up here is all.

The dollar or PowerShares DB US Dollar Index Bullish (UUP) has made a nice move higher, but hit short-term overbought levels today, which is what helped the market move back up. It definitely has more upside room in its daily pattern, which would allow for more downside for this market. Once the UUP unwinds short-term overbought, and much of that happened today, it can rise quickly. So be aware of that. It hasn't even reached its 50-day exponential moving average on the daily chart and the MACD is suggesting that is a real possibility. The dollar is confirming my warning for the short-term folks. The market is going to need time. Just be patient and let it happen over the coming week. Know that we're fine right here and that selling is a good thing.

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.

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 constitutinginvestment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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