Both Intel Corp. (INTC) and J.P. Morgan Chase & Co. (JPM) beat analyst estimates as well as Whisper Number expectations last week. Both companies also traded lower on Friday with heavy volume. This negative response to “positive” news suggests negative sentiment among traders, both professional and retail, and is in line with my expectation and forecast that this earnings season will bring the markets closer to reality.
Citigroup Inc. (C) and IBM (IBM) report Tuesday. Worse than expected results will provide more ammunition for the bears and potentially the first 2 day loss for the indices since early December .
 INTC $0.30 Analyst Estimate vs. $0.33 Whisper Number Expectation vs. $0.40 Actual
JPM $0.62 Analyst Estimate vs. $0.66 Whisper Number Expectation vs. $0.74 Actual
 INTC traded on 1.31 times previous day’s volume, JPM traded on 1.84 times previous day’s volume
 December 7 and December 8
Research in Motion (RIMM)
The markets are closing in on the gap between last Friday’s close and the 7th week of consecutive up weeks. Actually, some of the indices have already filled this gap. The Nasdaq Composite, representing smaller and technology based companies, which is positive year-to-date, has already filled the gap. In the charts above, the Nasdaq Composite, Apple, Google and Research in Motion are all currently establishing a new floor or support levels. Similar action is occurring in the Russell 2000. Both the Nasdaq and the Russell 2000 indices have consistently led the rally. Put another way, the Nasdaq and Russell 2000 have foreshadowed both the rallies and the declines for the last couple of months. It is for this purpose, that I reference them and point out the consolidation activity.
I also want to address Citigroup’s behavior. Citigroup is the only large bank that is not taking part in the current rally. Large banks here refer to Citigroup, Goldman Sachs, Bank of America, JP Morgan Chase, Wells Fargo and Morgan Stanley. The days following Citigroup’s earnings announcement, have seen the stock drop by approximately 20%. Citigroup has declined the last couple of days on lower than normal volume. However, yesterday’s candle on Citigroup was a hammer, a bullish sign. If Citigroup closes above $3.30, today’s candle will be a bullish engulfing candle. This would confirm yesterday’s bullish suggestion.
The importance of volume cannot be stressed enough. The higher the volume, the more valid the market movement. If the SPX closes above 870, extending the consecutive week streak, and does so on high volume, this will confirm my expectation the markets are setting up for the next move higher. The 10-day average volume for the SPX is about 6.1B shares. Currently the SPX has traded about 3.5B shares halfway through the trading day.
Posted in Stock Market
Tagged aapl, apple, bullish candlesticks, c, citigroup, goog, google, nasdaq, research in motion, rimm, russell 2000, spx, volume
Yesterday’s decline was very misleading to a lot people. The market dropped hard and every sector felt the fallout. Because no sector was left unscathed, the effects were magnified. This distortion caused some people to load up on short positions in certain sectors, particularly the financials. However, today’s rally was led by the same financials. Right now the financial sector is the strongest and most influenced by manipulation (term many bears use to describe the government regulation). Please do not fight this trend, the government has made it clear they will do everything in their power, including implementing legislation to benefit the banks. The name of the game is the banks win. On April 24, banks may receive preliminary results from the stress tests and the Federal Reserve is expected to release the methodology for the assessment. Final results are expected May 4.
Today the Treasury Secretary, Timothy Geithner, implied that the stress test results will indicate that most of the 19 biggest U.S. banks will have enough capital. The banks that require further funds are expected to get a mix of converted government preference shares and private money. It is no coincidence that the following this announcement the markets rallied, and were led by the financials. The three largest banks (Citigroup, JP Morgan Chase, Bank of America), by market capitalization, receiving bailout money all advanced at least 9%.
From a technical standpoint, if the SPX can close above the 877 resistance level, the next technical target is 1,008. Closing above 880 and forming a base will be bullish as it will create a new floor about 50 points higher than the previous (830 range). If the markets can consolidate around this level without any significant retracement or without retesting previous levels, we will see SPX 1000 in the near future. Near future here does not mean next week or even next month, but rather implies the SPX will see 1000 before it sees 800. The SPX is still trading within the uptrending channel, and with each passing day, the top of the channel is increasing.
In a shorter time frame Citigroup is making a bullish flag pattern. According to the technicals, no breakout to confirm this pattern has occurred. In this chart, today’s candle was almost a bullish engulfing candle pattern. I understand that “almost” is worthless, but the price action reveals bullish momentum. Citigroup also bounced off of its 50 day moving average this morning, which is also bullish. If Citigroup closes above the $4.00 resistance level for consecutive days, a breakout to $5.00 would be immanent. I can see Citi reaching the upside resistance of $7.00 around the time the SPX is approaching 1000. I continue to see huge upside potential in the financial sector. I expect today’s trend of the financials leading the market higher. It should be noted that this is not as bad as some (Art Cashin) make it out to be. For many experienced traders, the consensus is that the sector that led into the recession will not lead out. While I will agree with this statement, it is important not to lose sight of the fact that the financial crisis was a direct result of the housing bubble bursting. The financials are perceived as the sector that led the markets lower, but this is only because they are larger and received more media coverage. The financials can and will lead us out of this economic downturn. They will not be the only sector as I expect tech and small caps to excel as well.
Posted in Technical
Tagged art cashin, bac, bank of america, bullish, c, citigroup, federal reserve, jp morgan chase, jpm, resistance, spx, stress test, support, technical analysis, timothy geithner, treasury secretary
Futures showing the markets to open lower by about 1.5%. Foreign markets rallied overnight while commodities were hit hard. Crude opened lower in New York by about 6%. This morning Goldman Sachs has come out with a sell recommendation on Citigroup (C) saying its overpriced and gave a target price of $1.50. The government has shown some inconsistency by telling the 9 banks ready to pay back TARP that the government would like to convert to shares of the companies instead of receiving a cash payments. Bank of America (BAC), the largest bank by assets, reported first-quarter profits that more than tripled on gains from mortgage refinancing and trading.
My gut is that this gap down is very healthy for the markets. We needed a small pull back to continue to the push higher. Markets can only consolidate sideways so long before they must retrace. I feel like this will be a capitulation of sorts. Not the traditional capitulation, but I think we could see the markets trade higher the rest of the week following this huge gap down. I remain very bullish on crude and equities, particularly small cap, tech and the banking sector. I’m building positions in these on pull backs.