Click chart to enlargeThanks to GE's earnings miss, the Dow is once again testing its support line. Bulls are sitting on the edge of their seats, knowing that if this line gets decisively broken, their fun is over.
It will not go down easy. For many, this is a buy signal. In fact, we may be buyers today, too, if CF gets close enough to its 3/4 mark to interest us. We sold it at 137+ yesterday, so even at 134 it would be tempting to step back in with a 25% position. We are still holding POT.
It will likely take more negative news to get the Dow to break down. We've already had AA, AMD and GE report problems due to the economy. Sentiment is still positive overall, but is weakening. If there are a few more negative reports, sentiment will change (back to reality, actually), the Dow will break support and the bear market sell0ff will resume.
We always reference the Dow, although the same lines can be drawn on a chart of the S&P. The Nasdaq is similar, but often goes off on its own tangent, making it a less reliable market indicator. It is still important to watch all of the indexes because one may break a line before the others, giving early warning of what the others are likely to do. We see today that the S&P is very close to breaking its 50dma. The Dow has some breathing room. Small discrepencies like this are important to note. If the S&P breaks (and closes below) its 50dma, it is a very bad signal despite the Dow still closing above its. We'll be keeping our eye on the S&P closely, as it is currently resting on its support line and its 50dma. Very fragile technical position.
7 comments:
I bought 100 shares of GE at $32.37. Just a little starter position, hoping for a bounce in it by early next week. Stupid trade or not? My somewhat defensive holdings in consumer staples are down, but only 1/3 of the major indexes. I have one short to hedge my portfolio, but should have more. However, via bonds, defensive holdings (ag and consumer staples) and a little hedge, thanks to what I've learned from you, I'm in fair shape today as the market tanks.
Can't advise you on GE. We only buy uptrending stocks, and we often sell before earnings reports because we don't bet on fundamentals. Considering GE is back to where it was in mid 2004, it can't be too bad a price, but who knows. With the Dow down 180, if you're doing well today, you're doing something right!
We bought some CF at 135 and sold in the low 139's. Our intention is not to daytrade, but CF hit both the 3/4 mark if its channel and the top of its channel today, so we were just following the rules. Somehow we are up on our Ag trades AND up on our Ag short (SMN). Not exactly sure how that works, but we're not complaining. We're going to add to SMN if the Ag names rally further from here. The more overbought they get, the more attractive SMN gets.
It is still unclear whether or not the market will close below support today or not. This 180+ point selloff could just be an intraday spike below the line.
You say you often sell before earnings. What are your personal trading rules to determine whether or not you hold through earnings? Does it depend on where the stock is in the channel?
IS anyone wondering why on earth FXP is only up 2.2% today? The dow is down 230 points and FXP hasnt reacted at all.. I just dont get it,..
The Hang Seng did very well last night. If the market closes down here, with a decisive break of its support line, FXP is clearly a hold going forward, as the market will likely continue to sell off in the days/weeks ahead.
Market sentiment is changing once again.
Joel,
We generally don't like holding through earnings at all. We typically scale back ahead of them, or transfer the capital to another name in the group to avoid the direct hit. We were long POT through MOS's earnings last week, for example. You can do this, or just simply scale back your position and repurchase after the report if it turns out to be positive. It's the movement between earnings report that we're interested in, not the gaps created by the reports themselves.
Where the stocks are in their channels also weighs into it. Stocks are far more receptive to good news when they are in the lower part of their channel than they are when they're at the top. The same exact report will be met with very different market action depending on whether the stock is oversold or overbought ahead of it. Stocks that rally in the days ahead of their report are setting themselves up for disappointment. We generally scale back into that strength when the opportunity presents itself. No one wants to get CROX'd.
Thanks. Reactions to earnings (and news) is one reason I primarily buy/sell ETFs. That way I do not have to worry about one single company getting slammed like GE. My 100 shares of GE purchased this morning looks pretty bad this afternoon. I'm down 1% already. I'll give the trade 2 more days and the 3% loss limit first, though.
In the past you often spoke of the capitulation day to mark the end of a bear market. We were not able to have one due to FED intervention and other factors. How can one tell if today is such a day or if today is a bump in the road or if today is the start of a new leg down? We won't know until more time has passed, but what are the signs that suggest one versus the other? Does volume in a sell-off like today suggest anything? Or does the money start to flow back in the day after a capitulation day? (I realize that big financial names reporting next week may create a whole new scenario -- up or down.)
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