Friday, April 19, 2013

S&P 500 Bounces From Technical Support Levels

The markets are bouncing this morning after the S&P tested some key technical levels yesterday that we discussed.  Of note is that the Dow is down while the S&P is up due to the fact that a few big stocks like IBM, MCD, and GE are all trading lower after earnings and dragging the Dow into negative territory.

Getting back to the SPX, yesterday we talked about a test at the 50-day average around SPX 1543 and said that we could get a bounce from that level.  Also, the SPX has tested that 1540-ish level three times now.  So we could get more of a bounce in the short-term, but its hard to tell at this point if the recent correction is finished or has more work ahead.

Earnings reactions have been mixed and volatile again, with some big swings.

Stocks rising on earnings: GOOG, BGS, HON, CMG, MSFT, COF, ALGN, VMI

Stocks falling on earnings: IBM, GE, MCD, ISRG, WIT, BHI, SAP, STT, BGG

Markets in Asian ended higher overnight led by Hong Kong and China.  Although Goldman Sachs lowered its GDP expectations for China in 2013 from 8.2% to 7.8%.

Europe's markets are also higher this morning despite some weak industrial production figures in Italy and Spain as well as the continued inability for Italy to elect a new president.

Commodities are higher with oil prices up to $88 and gold back above the $1400 level just barely.

The 10-year yield is higher to 1.70%.  And the VIX which topped 18 yesterday has reversed lower and is down another 13% back near the 15 level. 

Trading comment: This is a nice bounce today, but will need to see some follow through to sound the all clear signal.  We think it is more likely that the market continues to chop around these levels and build a new base.  The reactions in normally steady stocks like IBM show how risky it can be to buy individual names ahead of their earnings reports.  Our strategy remains to wait to see how stocks react to earnings and to buy stocks that report solid earnings and react positively, preferably on pullbacks.  After any correction usually a new group of stocks emerges to lead the next rally and that is what we are watching for.

KAM Advisors has long positions in BGS, GOOG, IBM


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