DJIM #3 2010

Last weeks Journal tone consisted of headlines such as…digestion=tired buyers, Great Escape?, tired signs again?….that’s about as negative a weekly tone as we’ve had since the rally started in March 2009.   Does it mean we pack up the bags of cash and sit on sidelines and/ or go short?   Well,  we recently had 2 closes over the Oct Nov trendline which pointed to a test of the SPX1155-1160, which equates to same levels of this rally to the one from 2002-07.  As long as we hold the December high levels,  something we pointed to on a couple of occasions last week (Tuesday/ Friday) and proceeded to hold , we’re not packing anything away as a test 1155-1160 would seem to be the natural course first.  

Last week, the market played out to what we scribed in many respects.  We talked of the 2010 theme of selling tech, buying financials not co-operating by Monday’s trading close,  the abundance of negative news flow from AA earnings/ China policy/ Washington fiddling in financials and LLTC earnings reaction the next day to an excellent report mid-week..“but it sold off on the news after a nice run into the report. (hopefully this not a sign of things to come)”…  Basically,  INTC was a sign of things to come as it followed with same earning reaction and we got …“the market needs to do some backfilling sometime this week”.   The question is are we done backfilling heading into another  week of ‘big’ name earnings with BAC, C, GOOG, IBM, GE on deck.??

Following JPM earnings it will be critical to watch BAC and C’s reactions as parts of JPM’s report do not bode well for the these stocks.   If they can shake off what will probably be negative reports in many fronts and still not lose much in share price and/or market shrugs it off,  it would signal the market will likely go higher this week.  

The reactions to reports next week might be completely different than last weeks, ‘sell the ‘good’ earning news’ reaction.   As a trader,  you have to think this and not be filled with the anxiety the market did it’s best to leave with you by Friday‘s close.  Less than 5% of SP reporting so far does not make a earning season!.    Also, we’re watching for the weakness in Semi’s to reverse,  it’s too early for them to peak right after INTC earnings considering how bad they’ve been so far in 2010 with rest of tech.

The trading methodology remains the same until this earnings season takes shape in one form or another.  So, we keep the below always in mind…

• …we must simply ‘trade’ the upcoming individual earning surprises or sectors that get momentum.

• …We watch the December highs as important 'S' upport ` around 1130.

• …."the theme remains the same of buying on any weakness, still no conviction to chase the market too much higher…"selling was just profit taking and not aggressive selling and/or not shorts pressing"  (this will likely change if 1130 levels go, which would mean an imminent quick drop)