Rev Shark:
Burden of Proof Lies With the Bulls
1/18/05 7:48 AM ET
Remember how often you have postponed minding your interest, and let slip those opportunities the gods have given you ... (Y)ou have a set period assigned you to act in, and unless you improve it to brighten and compose your thoughts, it will quickly run off with you, and be lost beyond recovery.
-- Marcus Aurelius
It seems like the market is almost always at an important turning point, but a good case can be made that this week really will be an important juncture. The shaky start to the new year has left the indices in a precarious position as we await a flood of earnings reports over the next two weeks.
All of the major indices need to compose themselves soon or we face another move downward. With the limited amount of support on the charts, there is plenty of room to pull back further. The slide slowed down last week, which is a positive, but the major indices need to regain some key technical levels before we can feel more confident about the market. The S&P 500 needs to climb over 1190 on a closing basis and the Nasdaq needs to regain the 2100 level.
The issue this week is whether earnings reports have sufficient juice to put the market back on track. One good thing about the sharp pullback to start the year is that it has helped, to some degree, to temper expectations. Good news should generally result in a positive reaction since it has not been priced in during the past couple weeks.
Earnings season holds the seeds of better action, but there are no guarantees that even good reports can turn the tide. What we need is a big positive accumulation day and then some follow-through. The market needs to move up 3% or 4% on much better-than-average volume and then have another good day within a week or so to prove it wasn't a fluke.
The burden of proof is squarely on the shoulders of the bulls right now. They have to compose themselves and capitalize on good news as it hits. If they are unable to take advantage of some solid earnings reports, they will be in trouble. The bulls have already squandered some of the seasonality that favors them, and if they continue to stumble, buyers will lose confidence and stay on the sidelines.
After the long weekend it looks like we are off to a hesitant start. Overseas markets are giving back gains they enjoyed while U.S. markets were closed Monday in observance of Martin Luther King Jr. Day. Crude oil is nudging back up over the $49-per-barrel mark and that is having a negative impact.
We have earnings tonight from IBM (IBM:NYSE) and Yahoo! (YHOO:Nasdaq), and the reaction to those reports should give us a good idea of the prevailing mood.
We'll see how things develop as the open approaches, but right now it looks like the beginning-of-the-week optimists are sleeping in, which isn't a bad thing.
Gary B. Smith:
