TSP Talk Blog

Stocks moves down again yesterday as we saw that dreaded "sell the news" reaction from the initial big company to report earnings. The Dow lost 83-points.

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Alcoa posted very good earnings after the close on Monday and opened up higher on Tuesday morning, but ended the day losing over 4%. We have been concerned about the typical "sell the news" reaction to earnings in July, particularly when stocks were up so much in the prior month.

Some companies pre-announced earnings warnings yesterday and that gave investors something else to be concerned about as we head into the meat of earnings season over the next couple of weeks.

The S&P 500 is trying to hang onto the support lines, as well as the 20 and 50-day EMA's. If we don't see a bounce in the next couple of days, the next stop could be the 200-day EMA, although a slow slide down that descending support is also possible -as opposed to a quick drop to the 200-day EMA.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

The Nasdaq dipped into the large open gap but managed to close above it, and closed in line with the 20 and 50-day EMA's. You can see that the bottom of the large open gap is now lined up with the lower end of the rising trading channel (black lines).


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

I don't usually watch the NYSE Index very closely, but I noticed that it is deep into its open gap and trading below the 20 and 50-day EMA's.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

One of the reasons it has been hit hard is because the index contains a good number of commodity related stocks, which are heavily dependant on the action of the U.S. dollar, and the dollar has been rallying strongly since it successfully tested the 50-day EMA a couple of weeks ago.


Chart provided courtesy of www.decisionpoint.com, analysis by TSP Talk

Just a reminder that today is the 7th trading day in July and except for that outlier trading day #9, the next couple of weeks have some serious historical seasonal problems.


Chart provided courtesy of www.sentimentrader.com

Not coincidentally, the next couple of weeks will see earnings season move into full gear. If the reports are weak, the market will likely be disappointed. If they are good, we could see that sell-the-news reaction. This market may need some real strong upside earnings surprises to get through the next couple of weeks unscathed.

Thanks for reading! We'll see you back here tomorrow.

Tom Crowley


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