Put two traders in a room, and one might scream to sell while the other puts in orders to buy. So who’s right? Well, they both could be—depending on the indicators they’re looking at and the kind of trading you want to do.
We’ve rounded up our InvestorPlace advisors to give you their read of the market as we head into earnings season, with Alcoa (NYSE:AA) reporting Monday. Let’s get to the analysis:
John Lansing, Parabolic Options, Trending123 and Power Trading at the Open
We are finally seeing movement in the bond market — but in this case, the movement we are seeing suggests that investors are headed for even more of a “risk-off” move. This typically means that volatility will come back into the stock market, which we haven’t seen for just about all of 2013. I still think the market is going down, but in the meantime there might be stocks we can play on the long side.
Ken Trester, Maximum Options
Our indicators are giving bullish readings, as they have all year so far. But as the major indexes continue their ongoing “pause to refresh” trading pattern, some underlying indicators are beginning to weaken. Nevertheless, the indexes remain comfortably bullish, and that bullish trend will be in place as long as the Dow stays above 14,190, the S&P 500 above 1530, and the Nasdaq above 3195. Those numbers represent the index’s 50-day moving averages, and are the first line of defense against a trend change.
Jon Markman, Trader’s Advantage and CounterPoint Options
My sentiment model sees the potential for a multi-year top to be formed in the next one to five months. But that final top could be 50 to 100 points higher than where the S&P 500 is currently.
The analog would be something like April 2007, a time at which the S&P 500 still had 100 points to roll higher into October of that year. It then went on to sink 800 points over the next two years. The potential for 50 to 100 points of upside is still worthwhile to chase on the long side, even if you see the potential for a major swoon to follow.
Going into first quarter earnings reporting season, we face a situation where companies have pushed expectations lower than at any time since 2008. Earnings estimates are going to be very easy beat and I suspect people are going to be even more skeptical than usual of corporate officers’ dour outlooks going into the summer quarter.
John Jagerson and Wade Hansen, Slingshot Trader
Stocks ended Q1 on a powerful note. Besides two quick pullbacks in late December and February, the S&P has marched in a near-straight 200 point tear since mid-November 2012. In a virtually identical playback to 2012’s start, this rise to new highs has got a lot of market pundits brandishing their bullish stripes and predicting a banner year.
All of that may cause no small amount of consternation for seasoned investors. Even long-time market bears have finally capitulated to the trend. And when the most convicted contrarians have thrown in the towel, this may cause some second-guessing about stock picks and hesitation in committing new money to equities.
We don’t think the bullish trend can continue indefinitely. No one can predict the future, but we have several reasons to believe that a correction is in order, and we’re still hedging with a mix of calls and puts.
If you like this kind of market debate, you’ll love our 24/7 Trader’s Talk Forum, coming soon.