Finance or Fireworks?
The best time to warn is when nobody is watching. With Independence Day just 14 hours away (or less depending on when you read this), what better time to deliver bad news than an abbreviated market session short on volume? Companies just waiting for the right moment to confess their earnings sins had their best opportunity last night and today knowing that investors and traders with their minds on fireworks instead of finance would not be so harsh.
For the record, today's abbreviated session ended at 1:00 ET, culminating in just 623 mln shares traded on the NYSE and 868 mln on the NASDAQ. I counted 41 earnings warnings last night, and another 12 today. The high-profile warning setting the tone for tech stocks was Internet Security (ISSX), which lost 40% of its value today and closed at $30, down $20, all for having warned that its $0.15 profit would actually be a $0.02 loss. Oops!
Others in the same category, including RSAS, VRSN, and CHKP were all off substantially today, but did not set any new lows. Fortunately for the bulls, it did not bleed out to other sectors of the NASDAQ market. While MSFT, INTC, CSCO, and DELL were silent in lackluster trading, DuPont warned last night that its revenue would be slightly off too, but likewise did not bleed out to the rest of the market.
One bright spot though was QCOM who signed a renewed cross licensing agreement with NOK for CDMA technology, which sent QCOM up $6 to $63.87 by the close on 15 mln shares, a substantially larger volume than normal despite the short day.
The fact is that aside from the shellacking of individual stocks for specific lack of performance and today's small point losses, markets are rising in agony - but they are rising.
However, with so little volume, not much has changed since yesterday, as the Dow's loss of 22 points, the NASDAQ-100's loss of 4.91 points, and the SPX loss of 2.26 points barely qualifies as a flicker on the screen.
That said, let us get to the charts for more discernable action if any.
Dow Industrial chart (INDU):
As noted, nearly no change since Monday. The Dow closed down only 22 points. While it failed to take out 10,600-10,650 resistance, the ascending trendline support held up above 10,500. While the 60/30 stochastic has cycled down then partially reversed up, the daily stochastic has remained pointed up. If volume picks up, we could very see a breakout on Thursday or Friday.
NASDAQ-100 (NDX) chart:
Again, the NDX is almost the same as yesterday. While some long-term strength is poking its head out to see if the coast is clear, the daily chart still has a gap to be filled, and it will be. It is just a matter of when. Support held at 1800 although we cannot read too much into this low volume day. Nonetheless, support could still be present at 1775-1800 and might make a good call buying opportunity for a short-term play. The trend is still up on daily stochastic, and the ascending trendline will help bolster support at the above-mentioned levels. 60/30 charts suggest the next intraday move is to the upside too, barring a "surprise" warning from any of the technology generals. If that happens, look out below.
S&P-500 chart (SPX):
Remember Sonny and Cher? Well, "The beat goes on". Today's trading range on the SPX did nothing to change the direction of travel - still sideways and rangebound between 1210 and 1240. The daily stochastic is still pointed up as the candle comes up from 1210 support. The 60-min chart maintained its ascending trendline. The real test for SPX comes at 1240 resistance. If it can break through here, 1248 is the next test. Though it means little on a short day, the 60/30 stochastic reversal from today's low suggests the short-term move is still up.
As for the VIX still hovering near the 20 level at 20.95, there is a noted absence of bearish sentiment, a condition that is usually prelude to an all-out bear snort as it demolishes the bulls' happy picnic. Ants pale by comparison.
With so much bullish sentiment, bearish contrarians see bearish sentiment is soon to build. We just do not know when. But when it happens, it will be substantial. It could happen Thursday or on Thanksgiving. The thing that particularly worries me is the possibility of an earnings warning from the likes of a big technology issue - CSCO, INTC, of MSFT for instance. That would have negative repercussions for the whole market as long as the daily oscillators are buried in overbought. Bulls would then be thinking, "OK, time to worry", and sentiment would change very quickly.
As for Thursday's trading, its direction is entirely dependent on no new news rocking the boat by the open. 60/30 oscillators that pulled back Tuesday may have given the entries we were looking for to capitalize on any bullish moves that will likely be short-lived for no more than a few days. While we would bet "bull" right now, that could be about to change.
Personally, I will be looking for the mother of all put opportunities in the coming days or weeks once the daily stochastic reaches overbought, but while it still points up, put plays are short-lived and dangerous for all but the most experience daytraders. Call plays make the most sense right now. Just do not expect it to last.
One final note. I received an e-mail from a friend of mine today who works for a pick and shovel supplier to the semiconductor industry. His profession is not important in this context, but remembering this is a nation of ordinary people accomplishing extraordinary things, he expresses his disappointment that Europe could have such great influence over the merger of two American companies, GE and HON. He notes in very plain language, "Go and drink your beer, have your BBQ, and watch the fireworks; just don't forget what tomorrow is REALLY all about. And then think about [what it would take today to create the U.S with the same spirit the nation exhibited 225 years ago]." Rediscover your character and ponder the sacrifice made then that we all too often take for granted now. Freedom and all its related benefits carry with them the responsibility to defend them too. We should not let freedom and all its meaning slip from our grasp one incremental action at a time. It is worth fighting for.
To those celebrating here in the U.S.A, Happy Independence Day!
See you at the bell on Thursday.