Minyanville's T3 Morning Market Call: Expect More Digestion Ahead of Holiday

By T3Live.com  NOV 21, 2012 9:10 AM

Strong markets are able to digest bad news and hold in or continue higher.


US stock futures point to a close to flat open Wednesday on the last trading day before Thanksgiving. After Friday's reversal and Monday's strong rally, stocks rested yesterday, and we could see more of the same today. The flat to slightly higher open can be considered a win for the bulls given two headlines we are getting this morning: Greece has yet to finalize a deal for its next tranche of aid, and a ceasefire was not agreed to in the Middle East.

We now enter day four of this new rally attempt. What do we want to see at this stage? Yesterday we absorbed some bad news with Hewlett-Packard (NYSE:HPQ) and Moody's downgrade of Greece, and today we are shrugging off the lack of Greece deal and Israel-Gaza cease-fire. Strong markets are able to digest bad news and hold in or continue higher.

Doing more work above the 200-day moving average would be constructive for the S&P. I do think this bounce can take us back to S&P 1405 area before the bears try to make a stand. So far, we have seen a nice cash flow move for those that entered Friday or Monday—now things will get a bit more selective and precise.

In a light earnings day, Deere (NYSE:DE) is down 2.5% this morning after falling short of estimates with its fourth-quarter earnings forecast.

Traders will also be keeping a watchful eye on Hewlett-Packard the day after the company made an $8.8 billion write-down based on what it alleged to be accounting improprieties by its recent acquisition Autonomy. Former executives of software company Autonomy were blindsided and bemused by the allegations set forth by Hewlett-Packard. Autonomy had been subject to rigorous reviews and audits prior to the takeover, as well as regular quarterly filings for 10 years as a public company, so it remains in question how it could have misrepresented $8.8 billion of value in a ~$11 billion deal. Autonomy execs feel HPQ mishandled the integration of the two companies, destroying much of the synergistic value and attempting to account for all of those losses in one fell swoop in yesterday's earnings report.

Traders will inevitably be watching Apple (NASDAQ:AAPL) after its recent resurgence. AAPL showed slight relative weakness to the market yesterday by finishing 0.8% lower, but some digestion is OK after a more than 7% rally on Monday. The next micro resistance level to watch is $574.54, which is the beginning of the recent gap. Eventually, I expect AAPL to retest its 200-day moving average, which will be a big showdown area for the bulls and bears.

Scott Redler is long AAPL, FB, QCOM, BAC, SBUX.