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Go on the Defensive or Risk Getting Burned

Market likely to rally early, but it’s time to take a bearish stance


After days of focusing on Europe’s troubles, stocks rallied yesterday on some big earnings gains. AT&T (NYSE:T) rose as earnings increased 5.2% in Q1, Verizon (NYSE:VZ) was up 2.4%, 3M (NYSE:MMM) reported better-than-expected Q1 earnings and rose 1.6%, and United Technologies (NYSE:UTX) also rose after better earnings.

But the big bang came after the close when Apple (NASDAQ:AAPL) blasted analysts’ estimates with fiscal Q2 earnings of $12.30 and a revenue increase of 59%. This beat the company’s own earnings estimate of $8.50 and analysts’ estimates of $10.04.

At yesterday’s close, the Dow Jones Industrial Average was up 74 points at 13,002 and the S&P 500 gained 5 points to 1,372, but the Nasdaq fell 9 points to 2,962 because of fear that Apple would not make its earnings target.

The NYSE traded 751 million shares and the Nasdaq crossed 465 million. Advancers were ahead of decliners by 2-to-1 on both exchanges.

DJI Chart
Click to EnlargeTrade of the Day Chart Key

Despite some very good earnings reports and economic reports that have generally been positive, the major indices have been weak. The Dow broke its 50-day moving average, now at 13,016, on Monday following a recovery above it last week. Support now rests at 12,754 to 13,050. If that was broken, then the next support would be very close at 12,710.

SPX Chart
Click to Enlarge

The chart of the S&P 500 looks no better than the Dow. The index has violated its 50-day moving average at 1,380 and closed 1 point above the support line at 1,371.

Nasdaq Chart
Click to Enlarge

The Nasdaq, the former “leader of the pack,” has turned south. It gapped down from its 50-day moving average and also made a lower low. In order to turn this chart positive, the Nasdaq must close above the 50-day moving average.

Conclusion: In just a few days, the stock market has turned lower despite good news from U.S. companies and favorable economic news. Yesterday’s earnings were outstanding. And today trading should start higher based on the blowout earnings of Apple. But currently good news in the U.S. markets is being ignored as the European scene again takes center stage. That’s a formula for lower prices, and so it is time to either sell into rallies or actively pursue a bearish short-term stance.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

Article printed from InvestorPlace Media,

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