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This Week, Don't Bet Against the Bulls

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The table is set for some potentially wild action this week; tonight Apple and IBM report earnings.

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We've got some interesting factors to consider as we kick off the new week, so let's get right to it. Last Friday was an unusually mixed day for the market. A reflexive move higher in an exceedingly oversold greenback triggered some profit taking in weak-dollar plays, which had become a main driving force of the action to the upside, especially as the air started coming out of the tires in a number of cloud-computing names. Anticipation of more cheap dollars flooding into the system had created some huge moves in those areas, and it looks like reassurance from Ben Bernanke that, yes Virginia, the seeds of another bubble will soon be on the way, helped create a small sell-the-news reaction.

Financials, meanwhile, continued to act poorly after the Financial Select Sector SPDR (XLF) was rejected from the upper end of its multi-month base mid-week -- following JPMorgan (JPM) earnings and as concerns over increased costs due to the mishandling of foreclosures started to get a fair amount of press. Finally, longer-term bonds took a hit, with the iShares Barclays 20+ Year Treas Bond (TLT) putting in a lower low to go along with the lower high it put in on September 28. The net result was that both the Dow and the S&P 500 finished the day in mixed territory.

Luckily for the bulls, however, blowout earnings from Google (GOOG) spurred a big surge higher in both the Nasdaq and Nasdaq 100 as traders shifted their attention to big-cap tech darlings. In fact, that action pushed the Nasdaq 100 to its best levels since December 28, 2007.

On the one hand, if the dollar continues to see an oversold bounce and financials remain a laggard, then the steep uptrend off August lows could be threatened. However, continued strength in big-cap tech could make that a moot point. The market loves names in that space, and that could provide some real leadership, especially if buying interest spills over into secondary and tertiary stocks.

What's particularly interesting is that we have a slew of bank earnings due out this week, and both IBM (IBM) and Apple (AAPL) report tonight after the bell. Those two names have each been hitting fresh all-time highs in front of their reports, and that means we need to be watching out for potential sell-the-news reactions there as well. Additionally, VMware (VMW), a member of that cloud-computing group that's been absolutely hammered lately, also reports this evening.

So, the table is set for some potentially wild action this week. We'll all need to stay on our toes as we watch for signs for potential cracks under the surface to develop. However, the overriding fact that we need to keep in mind is that the broader market remains in solid technical shape. There are some negative divergences in some of the more esoteric indicators out there, and the indices remain stretched to the upside, but so far, the sellers have yet to gain any sort of edge. If they do, then we'll need to think about ratcheting up our caution levels, but the pricing action hasn't indicated that we need to become overly defensive. In fact, the indices could withstand a sizable pullback before any significant support levels are tested.

It will always be tempting to try and call tops, but the most dangerous thing that an investor can do is fight market momentum. Earnings will help traders figure out if the fundamental picture confirms what the technicals have been telling us, and we have the potential for some sell-the-news reactions should those reports fail to delight, but so far, we don't have any reason to bet against the bulls.

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No positions in stocks mentioned.
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