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Broad rally ahead of Cisco's earnings

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Stocks have built some impressive early session gains on what looks to be a defensive move by bears ahead of tonight's earnings from technology bellwether and networking giant Cisco Systems (NASDAQ:CSCO) $12.09 +6.42%. The last time Cisco (CSCO) reported earnings (May 7) that met analysts expectations, the stock jumped nearly 24% the next day and helped spark a short-term market rally. With the stock back at those levels, bears may indeed by locking in some near-term gains and removing some risk from their bearish accounts.

This has the major market averages showing gain in excess of 3% and many of the various indexes all trading to the upside. The lagging sector this morning is the Gold/Silver Index (XAU.X) 59.54 +0.70% as the US Dollar's gains as depicted by the US Dollar Index (dx00y) 108.53 +1.19% reaches multi-week highs.

US Market Watch - Today's action

I've gotten a lot of subscriber questions regarding some of the various symbols for q-charts market averages and sectors. My US Market Watch which I keep displayed on my monitor at all times during the day shows the US Dollar Index (dx00y) at the very top of the list showing gains again today and holding right at the 108.50 level (30-minute delay on quotes). A strong round of selling in Treasuries as depicted by the 5-year ($FVX.X) and 10-year YIELDS ($TNX.X) at the bottom has some cash coming out of Treasuries and obviously finding its way into stocks, with every sector showing gains. On a relative basis, the Gold/Silver Index (XAU.X) is lagging today's bullishness, and most likely benefiting to the upside near-term on this morning's broader market bullishness.

I've placed a "green arrow" beside the Networking Index (NWX.X) 119.27 +4.49% only as an observation that this sector, of which Cisco (CSCO) has major impact and considered the sector bellwether is showing "in line" market gains. As a result of this observation, I'm thinking the broader gains in the market is currently just a risk management type of move by broader-market bears ahead of Cisco's earnings to protect against any type of upside surprise tomorrow.

While the US Market Watch shows broad gains, a quick look at the internal breadth of the markets is also very bullish today. On the NYSE gainers lead decliners by a 4 to 1 margin, while the NASDAQ shows good breadth with advancers outpacing decliners by a 3 to 1 margin.

However, stocks hitting new lows continue to show weakness, despite such broader market gains and hints that stocks that are out of favor and have been hitting new lows, most likely become the more attractive short/put candidates on rallies to resistance as the new lows exemplify lack of demand. On the NYSE there are 62 stocks hitting new lows versus 17 stocks achieving new highs. The NASDAQ shows 88 stocks at new lows versus 10 stocks at new highs.

Jeff Bailey
Senior Market Technician
Option Investor


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