Banks Hold the Key
By Rev Shark
RealMoney.com Contributor
07/15/2010 7:25 AM
"Bank failures are caused by depositors who don't deposit enough money to cover losses due to mismanagement."
-- Dan Quayle
An outstanding report from Intel (INTC - commentary - Trade Now) led to a mixed day for the major indices. The S&P 500 stopped very near its 50-day simple average at 1,095 and the Nasdaq did the same around 2,250.
Technically, it is almost too perfect of a setup for a pullback. We have a straight-up, low-volume bounce right into resistance and then earnings news that serves as a perfect excuse for selling. Intel even did its usual act and sold off steadily after the gap up open. Cries that the Intel report were just too good to be sold went unheeded by market players who reflexively sell good Intel news.
The focus now shifts to banks. JPMorgan Chase (JPM - commentary - Trade Now) is the big earnings report this morning. The numbers look fine, but there is some mixed commentary and the stock is up just 30 cents to 40 cents in the early going.
We have the Google (GOOG - commentary - Trade Now) earnings report after the close tonight and then Bank of America (BAC - commentary - Trade Now), Citigroup (C - commentary - Trade Now) and General Electric (GE - commentary - Trade Now) tomorrow morning. The banks are going to be the key sector to watch. If they can gain some traction on earnings, that is going to hold this market up, but if they are sold on the news, it is going to drag along the broader market and trigger some movement to the sidelines.
Overseas China sold off on economic data that show that it is cooling off faster than expected. But while Asia was in the red, Europe was mostly green as banks turned up following the JPMorgan earnings news.
Banks are going to be the key today, and if they can hold, the market can continue to digest its recent gains. The big question at this point is how we consolidate the 9% jump over the past few weeks. If we drift around for a few days and allow weak holders to flip their shares, that would set us up well as a flood of earnings hits over the next two weeks.
We can afford to slip back at this point. We aren't going to kill this rally attempt with a little profit-taking, but if we start to slip below 1,075 or so on the S&P 500, then folks are likely to start becoming more nervous and worried. There are some recent gains to protect, and if they start to slip away quickly, that will trigger some sell stops.
The problem for the bulls here is that we are too extended and have too much overhead resistance to contend with. The good news is that most everyone can see the obvious technical issues and when things are too obvious, they often don't work.
Stay flexible and opportunistic. This is a market that has consistently surprised by running higher when the technicals looked poor. On the other hand, when technicals look poor, there usually is a good reason for it, and we need to stay alert for a breakdown to develop.
At the time of publication, Rev Shark had no positions in the stocks mentioned.
