It will be interesting to see whether Apple's earnings report explains the recent weakness in the stock, or whether it can give the stock a lift.
US stock futures are slightly higher Tuesday following the Martin Luther King Jr. holiday and second-term inauguration of President Barack Obama. The market continues to methodically stair-step higher, holding key levels in order to maintain bullish composure. Volume has been light and momentum has been lacking, but overall the action has been constructive for swing traders.
The S&P (INDEXSP:.INX) has held even higher than it “has to” in order to keep bullish sentiment intact. While we have seen healthy rest for most of the year following a fast start, there hasn't yet been anything in the way of a pullback. We might need to get some of that back-filling type action in order to get investors excited about buying again. With the debt ceiling debate set to flare up in a month or so and still lingering concerns about the European debt crisis and US economy, it may be hard to chase five-year highs. Many stocks have been riding their 8- and 21-day moving averages, giving me conviction to maintain a portfolio approach with a hedge of fluctuating size based on the setup. The bulls with that approach haven’t had a real gut check yet, though.
Upper level support on the S&P 500 ETF (NYSEARCA:SPY) is $147.30-147.60, and under that is $146.55ish. Pivot resistance now stands at $148.50 with a micro point around $149.25 and then the bigger one at $150. Most indices at five-year highs and there has been tons of participation across the board in various sectors. Leading the way are the Transports (NYSEARCA:IYT), Financials (NYSEARCA:XLF), Industrials (NYSEARCA:XLI), Homebuilders (NYSEARCA:XHB) and the Russell 2000 (INDEXRUSSELL:RUT). Tech (NASDAQ:QQQ) and Telecoms (NYSEARCA:XLT) have been lagging.
We are getting a bit overbought in many of the readings, but they are not extreme yet because of the slow, methodical nature of this move. Bull markets can stay overbought for a while, but I wouldn't fall asleep at the wheel in this thin tape.
Last week was a big earnings week for the financial sector, and this week we get more heavily into tech earnings. Make sure to be aware of when your stocks are reporting, and make a determination of the best course of action based on your time frame. I typically don’t take stocks into earnings, but sometimes I use an options strategy in order to set my risk as premium paid.
After the close today, we have several major reports. Google (NASDAQ:GOOG) is hoping to get back on track after its dismal earnings were leaked last quarter. The stock has battled back from that ugly daily candlestick, but I don't feel any edge into this earnings report. IBM (NYSE:IBM) also reports after the close today, and I would exercise caution with the stock. IBM has been in a steep uptrend over the last few years. Steep uptrends are great to ride, but when they break you can sometimes see significant downside. Intuitive Surgical (NASDAQ:ISRG), CSX Corporation (NYSE:CSX), Cree (NASDAQ:CREE), and Texas Instruments (NASDAQ:TXN) also report earnings after the close today.
Tomorrow, we will see McDonald's (NYSE:MCD) before the open. The stock has battled back from pivot lows on November 16, 2012. The biggest buzz tomorrow, though, will be reserved for Apple (NASDAQ:AAPL), which will report earnings after the close. The stock closed back below $500 on Friday, and has been unable to sustain any type of multi-day bounce. It will be interesting to see whether the earnings report explains the recent weakness in the stock, or whether it can give the stock a lift. Also watch sympathy stocks around AAPL's report. T3Live Momentum Trading Mentor Mike Lee opined last week that AAPL's recent weakness could have created buying opportunities in wireless stocks AT&T (NYSE:T) and Verizon (NYSE:VZ).
Also reporting after the close Wednesday, among others, are Amgen (NASDAQ:AMGN), F5 Networks (NASDAQ:FFIV), Netflix (NASDAQ:NFLX), SanDisk (NASDAQ:SNDK), and Western Digital (NYSE:WDC).
On Thursday the most notable reports come after the close with Juniper (NYSE:JNPR), Microsoft (NASDAQ:MSFT), Starbucks (NASDAQ:SBUX) and AT&T.
All stocks have not been created equal during this rally, causing some traders to scratch their heads. Some stocks have given steady multi-week moves, while others have only provided select cash flow trades. Technical traders should welcome divergences because they allow us to identify relative strength and potentially generate alpha.
Scott Redler is long GE, MSFT, XHB, DELL, DBC, CAT, F, LNKD, TBT, GLD. Short SPY.