I need a break.

I have some relatives from out of town visiting so I'll take a much needed break from these comments tonight. 

Quickly, the market opened way down on the Intel and Yahoo! earnings reports as expected, only to rebound strongly later in the day again.  I have been humbled once again by this market.  It has happened before and it will happen again and again. 

Many of you are growing impatient on the sidelines.  Jumping into stocks now would be a big risk in my opinion but you can't make any money without taking risks. It's your money and your call. 

I can tell the top is getting closer... The emails are getting nastier. 

7/20/2005
What goes up...

IBM's earnings report ignited the market Tuesday morning and impressively the gains held throughout the day.  That was really surprising to me since we had a ton of earnings reports being announced after the close yesterday and it was a perfect opportunity for investors to take some profits off of the table just in case.  But they didn't.

I don't know if that was a solid show of strength for the market, a show of extreme confidence, or just recklessness because after the close yesterday Intel and Yahoo earnings were OK.  Not great, just OK.  If ever the market was vulnerable to just "OK" news I believe it is now.  Both stocks have risen solidly for a couple of weeks and now, during after hours trading Tuesday, Intel was down about 4% and Yahoo was off nearly 10% from Tuesday's close.  Motorola and Juniper Networks saw similar results.  

Why have I been expecting a "sell the news" pullback?  Because it is typical in July during the main earnings announcement week.  Today is the 13th trading day of July... 


                              Chart provided courtesy of www.sentimentrader.com

Again the market will be tested to see if the can bulls come in and buy the lower open (assuming it does open lower) or if the volatility continues and we get another sell off. 

A new high can be a good technically signal for the market.  But these new highs can also lead to false breakouts during consolidation periods.  You can see in the 2004 - 2005 S&P 500 chart below that there were several situations where the market poked its head to a higher high, only to get shot down back into the consolidation. 


                  Chart provided courtesy of www.decisionpoint.com

So how do you know when the market will breakout for real or be sucked back into the abyss?  Well, that's where the indicators come in.  The 10-day ARMS index, the 21-day McClellan Oscillator, the overbought/oversold indicator, the equity put/call ratios, the price of oil, and the extreme lack of bears in the recent sentiment surveys tell me to take the cautious route rather than the aggressive one. 

Can the indicators be wrong?  Sure, in the short term.  But it is my experience that eventually the market succumbs to the extreme readings.  Risk can have its rewards as the bulls have found out since the terrorist attacks on July 7th.  Just don't forget the risk is still there. 

That's all for today.  Currently 100% G fund.  Thanks for reading.