Thursday, October 13, 2011

Market Overbought And At Resistance

The market is lower in early trading after a very nice rally. People often like to look at how much the market bounced from its recent lows. The SPX traded down to 1075 last week and bounced as high as 1220. That makes for a solid 13% bounce. Although if you were good enough to buy those lows and sold the highs yesterday, I have a job for you at our shop.

Bulls were hoping for some good news from JPM this morning, and they were able to top consensus estimates. But the cautious tone from management is not helping the stock, which is currently -5% lower and weighing on the financial sector which is the biggest laggard this morning.

Tech is bucking the weakness and the NDX is just barely positive as of this post. Google (GOOG) shares are higher going into tonight's earnings report. I'm sure GOOG will be able to post a little upside, but the stock reaction will be any ones guess. Also, GOOG management sometimes spends money on non-core things, so we will have to see how tight they were with their expenses. That's one thing that bothers me a bit about their management.

Asian markets were higher overnight, but Europe is down this morning. The euro is also lower while the dollar is higher. That is weighing on the commodity index. Oil prices have fallen back to $84, while gold prices are also lower around $1661.

The 10-year yield got a big bounce yesterday, but is giving some back today trading near 2.15%. As for the VIX, it almost got below the 30 level yesterday, but then bounced higher and is currently up +4% today to 32.54.

Trading comment: After being up big the last 6 out of 7 days, the market is short-term overbought and in need of at least some consolidation. Also, the major indexes have run into their former resistance levels near SPX 1220 and Nazz 2600. For the bulls, two things need to occur from here. The indexes need to hold above their 50-day averages, and these major support levels need to be broken. That could signal more upside is possible. But don't forget the list of stocks breaking out is not exactly bountiful. It is mostly utilities and defensive type stocks, not your typical quality growth names. So take the constructive action with a grain of salt, imo.

long GOOG, JPM


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