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2Q Earnings Season Starts On Monday
4:30pm (EST)
The bulls had a stellar week after taking a beating from the bears that pushed them to the brink and had the major averages on the verge of a collapse. The market spent much of Friday near the breakeven line before a late day rally pushed the indexes firmly into positive territory. The rally was impressive and came during a holiday-shortened week and on lighter-than-normal volume. We also saw rallies into the close instead of sell-off’s but can the rally be trusted?
The Dow added 59 points on Friday, or 0.6%, to settle at 10,198. It was the index’s best week so far in 2010 as the Dow popped 511 points, or 5.3%. However, to put things in perspective, the index fell 457 points, or 4.5%, the week before. Here is what we said Friday morning:
“The recent trading range has been 9,800 through 10,600 with 10,200 providing a pivot point. The low was 9,600 set last week. The 500 point rally off the lows has been violent and unpredictable to say the least.”
Folks, when we said volatility would be picking up, we weren’t kidding. The Dow closed just 2 points away from our “pivot point”. The next level the bulls will be eyeing is 10,400 then 10,600 and support will come in at 10,000 and 9,800.
The S&P 500 ended the week with an 8 point gain, or 0.7%, to finish at 1,077. The index was able to tack on 55 points, or 5.4%, for the week after falling 54 points, or 5%, the prior week. We mentioned the 1,075 level would come into play on Friday and we were also 2 points off from nailing the close. Watch for a test of 1,100 to the upside and 1,050 again to the downside.
The Nasdaq had the best showing on Friday, adding 21 points, or 1%, to close at 2,196. Although the 2,200 level acted as slight resistance, we are watching the 2,240-2,250 area to change our bearish sentiment. For the week, the index added nearly 105 points, or 5%, after dropping 130 points, or 6%, the week before.
Turning to black and yellow gold, oil also surged higher throughout the week and ended at $76 per barrel while gold finished at $1,210 an ounce. The rally in oil marked an impressive 5.5% gain for the week - its best weekly finish in nearly six weeks. The gold bugs got excited when the commodity dipped below the $1,200 level which garnered some buying but added just 0.2% for the week, overall.
The VIX fell to 24.98, down 0.73, or 2.8%, and closed below 25 for the first time since June 21. The euro, which we are watching like a hawk, has seen a powerful rally over the past month and is at $1.264 versus the dollar. We have the CurrencyShares Euro Trust (FXE, $126.00, down $0.50) on our Watch List and said $1.27 should act as resistance.
To make a long story short, the market was due for a bounce and we only mention these key levels to put things in perspective for you. It is important to try and keep track of where support and resistance is because it often gives you a clue of future direction. We not only do this with the major indexes but we do it with all of our trades.
As long as the picture or story hasn’t change, then it makes it easier to stick to your game plan. We warned last week that we could get a “dead-cat bounce” or a “relief rally” because the sentiment had become a little too negative although well deserved.
We still feel like any rallies should be sold and the upcoming earnings season will likely set the stage for the market’s next move. We are hoping to break out of this recent range and we could care less which way the market is headed but we are preparing for another leg lower.
Here is at look at some of the big names set to report second-quarter earnings this week:
Alcoa (AA, $10.94, up $0.22) after the close on Monday and Intel (INTC, $20.24, up $0.14) on Tuesday. Thursday we get a look at Google (GOOG, $467.49, up $10.93) and JPMorgan Chase (JPM, $38.85, up $0.69) while Friday brings Bank of America (BAC, $15.11, up $0.25) and General Electric’s (GE, $14.95, up $0.12) numbers.
As far as pre-announcements, we thought we might see more as only 150 companies gave Wall Street a heads-up on the upcoming quarter. The S&P 500 had a little over a 100 of the names which means roughly 20% gave guidance updates. To put things in perspective, there were twice as many 10 years ago.
The underperformance in a few sectors have caused analysts to lower estimates going into the quarter and some companies will look golden when they report. The key will be what wording they use going forward.
We are looking for another volatile week and the bulls have a little momentum they are using to push the market higher. We think the bears will also show up as we don’t think things will be as one-sided as they have been over the past two weeks. Either way, the rest of the summer will be interesting and don’t forget the July options expire THIS Friday.
We are currently looking at new trades that span August, September and maybe even December call and put options. We are likely to pull the trigger on a few recommendations this week so stay locked and loaded as the wave of news begins to flood Wall Street.
Futures Point to Slightly Lower Open
Tuesday, August 3rd, 2010
9:05am (EST)
The market started August off with a bang which has pushed the major indexes to resistance levels once again, but there other factors favoring the bulls. It’s hard to get excited up at these levels because the market has been here 4 or 5 times in the last few months and failed, but this time the momentum appears to be strong.
We mentioned yesterday’s positive economic reports, and even Fed Chairman Ben Bernanke tried to help the bears by saying “we have a considerable way to go to achieve a full recovery in our economy and many Americans are still grappling with unemployment, foreclosure and lost savings.”
Those remarks had little impact on the market as the bulls started off strong and got stronger throughout the session.
The Dow managed to finish with a 208 point gain, or 2%, and closed at 10,674. The index reached a high of 10,692 which is halfway between our targets of 10,600-10,800. All 30 of the Dow’s components finished in the green, and a break above the higher end of our range will lead to a charge towards 11,000.
The S&P 500 surged nearly 25 points, or 2.2%, to settle right on 1,125 which is the first area of resistance we have been outlining. A push to 1,150 seems likely as the index traded up to 1,127 yesterday.
The Nasdaq lagged but still managed a nice gain of 40 points, or 1.8%, but was stymied at the 2,300 level once again. The index closed at 2,295 and reached a high of 2,299 yesterday and hit 2,307 a week ago today.
We have talked the indexes overshooting these ranges a little, especially the Dow, but for the most part, nothing has changed except that a lot more people are getting bullish. Perhaps there is something to this as the Volatility Index (VIX, 22.01, down 1.49) closed BELOW its 200-day moving average.
For those of you who are new or unfamiliar with the VIX, it is an index that measure fear in the market. A rising VIX means the market is nervous while a falling VIX is good for the bulls. Usually, a reading under 20 indicates confidence and calm while a reading above 30 indicates the bears are in control.
The VIX reached a low of 15 back in April when the market was testing new highs and was at 37 to start July when the market was on the verge of breaking down. This picture may help you understand volatility better, and a continued rally will push the index below 20.
Futures are pointing towards a slightly lower to flat open. Dow futures are down 15 points to 10,602 while the S&P 500 futures are down 1 point to 1,120. The Nasdaq 100 futures are down less than a point to 1,894. There were a couple of blue-chip stocks that disappointed Wall Street with earnings this morning, and we will cover those stories in our 1pm update.
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