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MV Crime Report: Bulls Get Mugged By Market


Rain or shine, we review the day's biggest stock stories.

The market is officially back from its post-holiday hangover: Today's trading session was one of the more action-packed days we've seen in quite some time.

There was tons of news today: Alcoa (AA) believes that China has bottomed and is growing again, large banks said they'll stop accepting IOUs from California on Friday, and AIG (AIG) lost a court battle against former CEO Maurice "Hank" Greenberg.

As for the S&P 500, it was hit with late-day selling pressure on no news at all. The popular index closed the day down 1.97% to 881, just off the low of 879. The market was under pressure all day, but bulls got their legs kicked out from under them once the intraday support at 886 broke.

Today on the Buzz and Banter, Professor Jeff Cooper showed the importance of the 882 level, which was successfully breached today.

"882 is what is referred to as a 'master square' number as it vibrates off major highs and lows. Specifically, the October 2002 low at 768 and the October 2007 high of 1576.

"Interestingly, 882 roughly coincides with the 200dma which some market participants are expecting to act as support. It might on this particular test which has traced out a potentially bullish 1-2-3 swing down to the 200 dma.

"However, the first attack of the 200 dma as offered many times is almost always turned back. Despite the cheerleading on the current break above the 200dma, not all breakouts are created equal. It will be the second attempt that will tell if Hoofy gets the cheese, or whether he was caught in the trap.

"That looks like last ditch support in the current corrective mode. A break and close below 882 should keep big buyers at bay until at least a 10% correction plays out, ie 850/860. But I suspect that if a larger correction is in the cards that 'convenient' 10% corrective level will be undercut."

I think it's now becoming obvious that we're in a corrective phase. The most likely reason for the sell-off is earnings seasons. After the huge rally over the past 3 months, second-quarter earnings expectations are most likely already priced in, or are too high in general.

And if a fund caught half of the rally off the lows, why own them now? Take the profits. Has the economy improved that much? With unemployment nearing 10%, I'd say not.

As for earnings season, it will kick off tomorrow night when Alcoa reports. Current estimates call for the company to report a loss of $0.37 a share on revenues of $3.92 billion. The bar is high for this report following the bullish comments from Alcoa's CEO, which lifted the stock by 1.62% today.

I would also watch the reaction in Century Aluminum (CENX); for a macro sense, check US Steel (X) and Freeport McMoran (FCX) after the quarter is released.

That's all for tonight. Have a great one!
No positions in stocks mentioned.

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