Friday, January 21, 2011

The Dow held up because of International Business Machines Corp.

The market has been needing to sell and today it finally did. The Dow
held up because of International Business Machines Corp. (IBM), but
the S&P 500 and Nasdaq took it on the chin today, especially those
tech stocks in the Nasdaq. Where to start. Let's start with Apple Inc.
(AAPL), the most loved stock on planet earth. It fell hard yesterday
early on when the news came out that CEO Steve Jobs is very sick
again. It recovered beautifully in anticipation of its earnings report
that evening. The earnings were out of this world fabulous. The stock
ran up and was about to move to new highs. With such great news it was
bound to keep running up. Not the case. It snapped down. It closed red
after being up over ten dollars. A topping stick for the foreseeable

This allowed the NDX to fall hard today as many other stocks in the
world of the Nasdaq took it hard to the down side today.
Incorporated (PCLN), Netflix, Inc. (NFLX), F5 Networks, Inc. (FFIV),
and a whole host of others. One by one they blasted lower. That's the
world of technology.

Now on to the world of the financials, and it wasn't pretty. Goldman
Sachs (GS) warned for the first time on revenues for as long as I can
remember. The stock crushed over eight dollars today. It's broken and
will likely soon lose the 50-day exponential moving average. The
Direxion Daily Financial Bull 3X Shares (FAS) got smoked today.
That's the ETF for those financial stocks. Wells Fargo & Company (WFC)
also missed on their earnings report, and it took a hit as well.

Let's now move on to the world of the commodity stocks. Gold failed
with a black candle while back testing its lost 50-day exponential
moving average. Stocks like Walter Energy Inc. (WLT) and Alpha Natural
Resources, Inc. (ANR), big froth stocks, have been crushed over the
past week or so. Today was no exception off their intraday highs.
Everywhere you go you see stocks snapping down. This is the process of
starting a market correction. Not a longer-term sell signal, but the
start of a correction. Bottom line is stocks are snapping, and thus,
you need to be aware of jumping in where you shouldn't for a while.

After hours we saw yet another leader go away for a long time. F5
Networks, Inc., which has a valuation well beyond what it's worth, got
killed. Down over twenty dollars. The price you pay for holding on to
froth in to earnings. Many careers ended tonight. Not worth the
headache. Greed kills. One by one over time these froth stocks go
away. It's incredibly dangerous to own stocks in to earnings, but if
you have to, at least hold stocks that have lower P/E's so you can
take out the risk to some degree. I have no sympathy for anyone who
plays this game from the perspective of greed. No crying when you hold
a massive P/E stock that's pure froth in to earnings hoping to score
the BIG one. You get what you deserve. Too many lose the reality of
what this game is supposed to be all about. Avoid those stocks folks.
Do what you feel is appropriate but understand the risk if you get

The market is going to need time to get itself together before it can
make another strong run higher. That just won't happen for a while as
many stocks are broken. They will need weeks to months to repair
themselves. We are losing more and more leaders daily here, thus, you
are all going to need a lot patience if you want to play to the long
side with any aggression. When you lose lots of leaders you are
entering a phase of the market that will need to find new leading
froth stocks, and trust me folks, they will appear.

Good earnings reports are still being rewarded and it's those stocks
that will emerge over the next several months. Patience as that
process takes place. The biggest disappointment this earnings season
is coming from the usual place where we have seen weakness in the
past, the financials. Some good ones but bad reports from leaders
Northern Trust Corporation (NTRS), Goldman Sachs (GS) and Wells Fargo
& Company (WFC) along with Citigroup, Inc. (C) will make it tough for
this sector to do well for quite some time. I wouldn't be loading up
there folks.

Strong support for the S&P 500 comes in at 1269 where you have the
20-day exponential moving average. After that we have trend line
support at 1250. Then we look for the big one at 1240 where we have
the key 50-day exponential moving average. 1227 is next where we have
the November highs. One step at a time and I don't think you'll just
see the market go away. It'll fight as we're in a bull, thus, expect
up days as we slowly, but gradually, unwind very overbought daily and
weekly index charts along with a 35.1% bull to bear spread. I don't
think we go lower than the 50-day exponential moving average as we
correct, but again, you can get killed if you play inappropriately.
Slow and easy in this type of market. Let things come to us.

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