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The T3 Morning Market Call: Market Rests as Earnings Roll In


The trend is your friend as leading stocks continue to lead and lots of stocks make new highs or have catch-up moves.

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World markets are mixed with European markets straddling the flat line. China continues to be the laggard down 1% and Japan is now at eight-week highs. S&P (INDEXSP:.INX) futures are up small as we continue to rest below all-time highs. Yesterday we heard from Fed Chairman Ben Bernanke as he said "our asset purchases depend on economic and financial developments, but they are by no means on a preset course." Markets didn't have much of a reaction as that is basically what he has been saying all along.

This is now the fifth day of digestion above S&P 1665-1671. Some say digesting; some say stalling. Within these five days, there has been a lot of individual stock action based on earnings reports. I keep hearing everyone coming out and trying to make "calls on the market."

At this point, let's simplify it: Stay bullish until you see a blind-sided gap and go to the downside and close below 1665-1671 -- or an outside day like we saw on May 22. That would be a trade above 1687, where shorts would be forced to cover and longs are compelled to chase, and then we fail later and close below 1680ish. Those two scenarios would be your signal that a pullback/correction could be imminent. Until then, the trend is your friend as leading stocks continue to lead and lots of stocks make new highs or have catch-up moves.

Many pundits are talking about how most earnings reports are missing on revenues but are beating EPS expectations due to buybacks. What matters is the market reaction. When the market wants to look at things as glass half empty versus half full, we will see it with the price action.

Let's go over some Chinese names that have been acting better.

BIDU began to wake up last week and accelerated on Monday after news it was acquiring 91 Wireless. Since Monday, Baidu has continued to show relative strength and hold the gap up from the news. Within the next one to next days, if Baidu is able to hold above the gap, it could extend higher again and confirm the downtrend breakout that has been controlling it for the past few months.

SINA gapped up on its last earnings report in April 29, since then it has been consolidating in a channel, showing continued demand. Early this week and late last week, SINA began to show signs of breaking out and then received an extra boost from the Baidu news on Monday. On the weekly chart, SINA has cleared downtrend resistance that has been in control of the stock during the past 19 months since February 2012. The stock appears to coming out of a long-term base after holding higher for two months.

QIHU, which is currently trading at all-time highs and leading the rest of the Chinese Internet stocks, had yet another powerful bar yesterday. While the chart is extended, you still may be able to still get another day out of it for a tact on type trade. Look for potential continuation above yesterday's high of $55.90

SOHU has the best set up out of all the Chinese Internet stocks, in my opinion. It is currently trading near 52-weeks highs and has a tight pattern that could be poised for a breakout over the $67.00 - 68.40 resistance zone. Keep an eye on this name as it could be the next breakout candidate in this group.

DANG, after hovering around the 8- and 21-day for the past 3 weeks, cleared the recent pivot of $7.50 yesterday with volume yesterday. Watch for a "Day 2" continuation trade today as it has room for a potential move back to the 52-week high at $8.28.

In the trenches, we will look at some stocks that reported earnings and potential opportunities.

AXP is down 1.7% pre-market after EPS came in better than expected at $1.27 versus expectations of $1.21. Revenue came in less than expected, though, at $8.25 billion versus the expected $8.32 billion. The stock has some support at $74. Below that, we have $71.68 as the next important support.

EBAY is down 6% pre-market after EPS was in-line with expectations at 63 cents per share. Revenue missed expectations coming in at $3.88 billion versus the expected $3.89 billion. The 100-day moving average could come into play at $53.79ish. Below that the 200-day is at $52.64. This one is right back in the range.

IBM is up around 2% pre-market after EPS topped expectations at $3.91 versus the expectations of $3.77. Revenue missed expectations coming in at $24.9 billion versus expectations of $25.39 billion. It has some resistance at $200.80 then the 100-day at $203.73. I would not chase this open on the buy side, but that's me.

INTC traded lower after hours with a low of 23.40 (1.9% as of 4:41). EPS came in line with expectations of $.39 per share. Revenue missed expectations of $12.89 billion and came in at $12.8 billion. The 100-day is sitting at $23.09, which could be a buyable spot. Below that we have June 24's pivot low of $22.64. Stock has been very lethargic lately regardless

SNDK is up 4% pre-market as EPS beat expectations coming in at $1.06 per share versus expectations of $.93 per share. Revenue came in basically in line at $1.4 billion. The 52-week high is $63.73 -- could it break above that level today?

Some quick thoughts

TSLA, after a big sell-off on Tuesday on Goldman's valuation note, regained its momentum with a 10.27% gain yesterday. It saw a nice snapback that was started by a "Red Dog Reversal" at $107.30. TSLA has reclaimed both key short term moving averages, the 8-day and 21-day. Holding above $114-115 would keep momentum intact. It's up a bit this morning, perhaps you could look short for a quick cash flow trade into the $122.50-124.50. This continues to be a great two-way vehicle.

AAPL has been inching higher into major resistance at the 50-day and 100-day moving averages at $432-433. It briefly touched this resistance level and failed yesterday, but is still holding above prior day's lows, showing some commitment. It put in a low at $428.22, and active traders could use this as the tight stop. A move through $432.22 could lead to a nice breakout to the upside.

BAC saw a nice gap and go on Wednesday after beating its earnings estimate to finish the day up 2.7%. BAC saw a nice run before its earnings report, and still got some momentum after this event, showing some commitment. The next resistance level is $ 15.31 on the weekly chart.

At this point, there is no reason to be extremely bearish or heavy long. Take trades and stay the course based on your time frame.

There are lots of earnings after the close: GOOG, MSFT, AMD, CMG, ISRG, SWKS, COF, RMBS, ALGN, CE, WAL, and CYT.

I typically don't take stocks into earnings. I usually trade them after or use an option strategy. However, I broke a rule with BAC (took it long), but this has been a core trade all year. I might take a small call strategy into Google using the weeklies after for earnings tonight.

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Scott Redler is long BAC, JPM, AAPL, MCP, DDD, MGM, KNDI calls. Short SPY.
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