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The market action in the past week has been quite positive. The Dow, S&P 500 and Nasdaq have all posted new highs. The Nasdaq has been the strongest (excluding today) and has so far moved through and held above its previous highs. So is this breakout the start of a new leg up and the end of the oscillating market we’ve seen over the last two months, or is it just a head-fake?
I wish I had the answer. My gut tells me that it’s likely to be a head-fake. Tech has been leading, and that is a good thing, but the run-up into earnings season is of some concern. In the last few days we’ve seen some huge haircuts to the prices of AMD (AMD | Quote | Chart | News | PowerRating) and Intel (INTC | Quote | Chart | News | PowerRating). Intel had risen nearly 10% so far this month before getting whacked last night. The report wasn’t all that bad, which implies to me that the stock had been pushed aggressively higher by those expecting something very strong. Apple (AAPL | Quote | Chart | News | PowerRating) is on tap tonight. Apple has risen about 20% in the last 2-3 weeks. It will likely take a pretty incredible report to provide any further significant upside. Even a big report won’t guarantee anything, as a pop higher tomorrow morning could be used as an excuse to take profits. Watch the action here closely as it should provide clues as to the type of action we may see over the coming weeks. It may also help us to answer the new leg up or head-fake question. As they say, it’s not the news, but the reaction to the news that’s important.
On another note, the move in oil is a bit overdone. There has been some bounce back in oil stocks in the last few days and in crude today. I would expect this bounce to last a little longer. Energy now makes up a decent portion (10%) of the S&P 500, so even if the broad market sells off in the short-term, I believe energy stocks will help to prop up the S&P compared with the Nasdaq and other indices (near-term).
Best of luck with your trading,
Rob
For those who may be looking to expand their knowledge beyond just market timing, my Hanna ETF Money Flow System utilizes the VIX in generating trading signals for spread trades.
Rob Hanna is the principal of a money management firm located in Massachusetts. He has spent the last several years developing and refining methods for trading in stocks across multiple time frames. He selects stocks using both fundamental and technical criteria, and then trades them using technical analysis techniques.
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