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“The earnings picture was a mixed bag with Tech stocks and the Financials. We got some great reports from leading bell weathers, old school names and new kids on the block, while others dropped the ball. Nearly half of the S&P 500 companies have reported their numbers and another 100 or so are on deck this week. The last of the big-name caps are starting to roll in and 4Q earnings will gradually wind down into February and March. There will still be some opportunities to play the possible breakout or breakdowns in a few more names and we have one or two trades we like this week for the Daily.
We said coming into the season that most companies would easily match or beat the lowered bar expectations and of the ones who have reported, over three-quarters of them are beating per share estimates. We were more concerned with revenue beats and guidance. Companies are at nearly a 70% clip on revenue beats so the balance is pretty close. It remains to been seen if 3Q12 was the “bottom” of a market earnings cycle but with improved 4Q earnings, the next round in April (1Q) could be crucial. This will likely decide the next major up or down leg in the market if the indexes develop a trading range for February and March instead of breaking out or breaking down.
The zombies could be out of the picture until May if all goes well with the Debt Ceiling increase so we won’t jinx ourselves as we get a break from writing about them. However, the Fed zombies will be meeting this week so the market will have to battle Bernanke’s comments. We expect him to continue milking the bulls by staying pat on his current commitment to pump money into the system through the quantitative easing initiatives.
The current run has been one of the longest bull markets without a pullback and is moving up the top 10 list. The S&P 500 has been on a nasty win streak of 8-straight, the Dow is up 11 out of the last dozen trading sessions, and we are seeing up Friday’s and Monday’s (and Tuesday’s).
We know the pros are flashing technical signs of overbought levels (MACD, RSI, Bullish % index, etc.) but they have missed the beginning of the year gains (just like last year) and continue to clamor for a pullback. We know markets can get oversold but don’t forget they can get even more oversold, or remain irrational longer than investors can stay rational (or liquid). We weren’t quite sure if the bulls had the stamina to run from December until the end of January and when our fluff targets were triggered, we decided to start closing some February plays in the Daily. We also had some protective stops in place on a few trades for the Weekly Wrap and while there are a few trades we like, we are waiting for a pullback to add a new “batch” of trades.
We mentioned last week there we expected the bulls to run for another week and into the first trading day of February which is this Friday. We said the bulls would need a catalyst for one last possible surge, like the one we saw on the first trading day for 2013, and a lowered unemployment rate (or higher) could be a market moving headline.
The extended targets we gave you last week are still a possibility but as we mentioned earlier, our trading plan from DECEMBER was to start slimming down on call options once we got here. This doesn’t mean we will start buying puts but we can afford to take a breather as we have gotten off to a great start for the year.
We are starting to look at put options for the Daily for a pullback that will eventually come but if support holds, the bulls can still push higher. If we start to see the first layers of support crack, we will get more aggressive with some downside plays but for now we can ride the rest of our call options for another move higher. This won’t help with new trades for the Weekly Wrap but it will help us establish positions in some quality names if there is continued weakness ahead as we will be able to pick up some quality stocks at cheaper prices.
The market could get a China curveball, a zombie attack, a currency crisis, or a bond market bubble popping down the road and we mentioned earlier to start eyeing the exit door as we wind down January. When the dips are no longer being bought, and support cracks along with the VIX spiking, then we will know it’s time to possibly go short.
The market got some nice round number closes on Friday and as a summary here is how the major indexes look:
Dow 13,895; S&P (500) 1,502; Nasdaq 3,149; Russell (2000) 905.
We are positioned for one last push higher and here were the extended targets we gave a few weeks ago: Dow 14,000; S&P (500) 1,500-1,525; Nasdaq 3,200-3,250; and Russell (2000) 900-925.
There is a good chance we get the last 1%-2% push to reach the upper channels of our charts and from there it will be interesting to see if the market continues higher (purple lines), or if we do get a pullback. The bulls have met our December expectations and we were happy to ride shotgun but we know thrill rides end quickly.
We are looking to be at a great exit point if there is a pullback as we wind down our open short-term positions for the Daily. We can continue to play call options if there is a continued breakout, or we can switch to put options if there is a pullback. The indexes could also develop a “trading range” in February so we will have to be patient and wait for the clues to come to us.” (from 1/21/2013 Weekly Wrap Update)…
The bulls made us look golden once again as they rebounded from a choppy week and grabbed Wall Street by the horns on Friday. The suit-and-ties were looking and calling for a pullback all week and told you to buy “protection” but they failed to look at the daily action and were to focused on Friday’s unemployment picture.
With the small-caps ending higher on Thursday, the S&P Volatility staying under 15, and with futures up a hal-percent Thursday night, we knew the trap was being set as Wall Street braced for Friday’s headlines.
Although most predications (including ours) were for a miss, we knew something had to be up but we went to bed resting easy. Futures remained strong into 8:30’s report and soared afterwards which lead to a strong open and a few more or our fluff targets being triggered. The nonfarm payrolls showed unemployment increased from 7.8% to 7.9% as the U.S. added 157,000 jobs in January. Expectations were for a pop of 160,000 jobs added.
The spin factor were the revised numbers which showed an increase in November and December jobs with other zombie stats that painted a picture of a slow and steady improving jobs market.
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