We Are Still Somewhat Extended
By Rev Shark
RealMoney.com Contributor
07/16/2010 7:31 AM
"Never awake me when you have good news to announce, because with good news nothing presses; but when you have bad news, arouse me immediately, for then there is not an instant to be lost."
-- Napoleon Bonaparte
We have a flood of news hitting, but so far there is very little market movement. Before the close last night, we had the passage of Finreg, Goldman Sachs' (GS - commentary - Trade Now) settlement with the SEC and progress in capping the Gulf leak by BP (BP - commentary - Trade Now). All three stories hit almost at once and spiked us up into the close but so far this morning, they aren't having any additional impact. Part of the reason we don't have more upside this morning is that Google's (GOOG - commentary - Trade Now) earnings disappointed and both Bank of America (BAC - commentary - Trade Now) and General Electric (GE - commentary - Trade Now) are down slightly after issuing their earnings reports this morning.
Overseas, the Nikkei took a hit on a stronger yen, but Europe is showing some slight gains. One of the things helping the market lately is the stronger euro and weaker dollar, and we need to keep an eye on that as a driving force for a market reversal.
While the market is not reacting much to the news, we definitely have some positive developments. The one thing the market never likes is uncertainty, and the Goldman Sachs, BP and Finreg news gives us some closure, which allows the market to price it and move on. The danger we have to watch for, however, is when good news is shrugged off, which indicates that it was well-anticipated and is priced in already.
Technically, the major indices have been treading water for a couple days now. While we've had some intraday weakness, we've come back late in the day ,and we closed almost flat each day. Going sideways is a great way to work off overbought conditions and to consolidate recent gains. The longer we hold steady, the stronger the bullish case will be, but we still are somewhat extended.
Interestingly, the S&P 500 has stopped just short of 1,100 three days in a row now. That is the obvious upside resistance level, and if it surpassed, we should have a little extra boost as buy stops are triggered. After that, I'll be looking at 1,112, which is the 200-day simple moving average, as the next upside hurdle. With no real pullback in eight trading days, we are still in danger of a good bout of profit-taking, but the dip-buyers are doing a nice job of keeping bids under this market.
We have a lot of news to digest now, and hundreds of earnings reports next week to add to the mix. Don't forget, we also have Apple (AAPL - commentary - Trade Now) making an announcement about a fix for its antennae issue. So much news and so many cross-currents in such a short time frame -- it is a bit overwhelming, and the market looks a bit confused in the early going.
We'll see how we act after we settle down about an hour or so after the market opens. If the bulls don't react to the positive news more aggressively, nervous longs are going to start locking in some gains. There is no better sign of trouble than a market that doesn't go up when it has good news, so be careful out there.
At the time of publication, Rev Shark had no positions in the stocks mentioned.
