Market Analysis and Summary
The NASDAQ managed to close above its 50-DMA over the prior two sessions, while the S&P 500, Russell 2000 and DOW remain below, although not by much. The distribution count is now at 5 days on the NASDAQ and 6 on the S&P 500. Given all the current geopolitical concerns, the major indexes are holding up rather well at the moment.
Earnings season is now in full swing and the way in which C, JPM, WFC and PNC reacted to their earnings last Thursday was far from ideal. GS reported disappointing earnings before the opening bell yesterday, which then proceeded to gap down and close near its low for the day as volume swelled to 231% above average. BAC and SCHW also reported earnings before the open yesterday, both of which held up much better than GS, but still remain in a downtrend. This does not bode well for the financial stocks.
In the tech arena, NFLX and CUDA reported earnings after the close on Monday, neither of which reacted constructively, especially CUDA, which fell nearly 16% as volume exploded to 1,192% above average. Not to mention, IBM which reported earnings yesterday after the close and finished the after-hours session well below its 200-DMA. On a bright note, YHOO, LRCX and ISRG reported earnings after the close yesterday and all finished higher the after-hours session. Fortunately, earnings season has only just begun and despite a shaky start, most leading growth stocks have continued to hold up in a healthy and constructive manner.
Earnings will likely play a big role in how things turn out from here. So, go slow and exercise caution while we wait for more companies to release their earnings over the next several weeks. There is no hurry to initiate new positions given the current risk/reward. Instead, use this time to make a list of the highest quality stocks, that are building constructive bases and exhibiting the greatest relative strength. Except for positions with big cushions of profit, that haven’t triggered trailing sell stops, we would keep exposure to a minimum until risk/reward is back in our favor.
NOTE: The entry areas discussed in the charts below are either for very active traders, or for when the pressure comes off the general market and leading growth stocks are breaking out again.
The NASDAQ fell 0.12%, but held above its 50-DMA and closed near its high for the day as volume expanded, which is constructive.
The Russell 2000 held above logical support and finished the session 0.05% higher as volume expanded.
The S&P 500 finished in the upper half of its range for the day as volume on the NYSE expanded, which is considered constructive, despite closing lower. However, it is still trading below its key 50-DMA and to make things worse, its short-term moving averages have begun to cross below it as well, giving this area of resistance even more significance.
The DOW fell 0.55% and closed in the lower half of its range for the day as volume expanded. Additionally, it continues to trade below its key 50-DMA, which like the S&P 500, also has its short-term moving averages beginning to cross below it, giving this area of resistance even more significance.