Earnings drag stocks lower, but not convincingly

The reaction to earnings from Apple and others overnight could have been worse! Watching the open this morning gave some impression the day could accelerate on the downside… but, it bounced off the early lows and held the bounce, but it is still subject of interpretation on where we go from here. Is it an overbought test or do we move higher in the broad indexes? It is important not to make assumption and let this unfold day by day. Today was just another challenge that investors seemed to take in stride… Tomorrow will offer more clues to the puzzled markets.

The NASDAQ 100 index tumbled 1.1% on the earnings news last night. Looking at the chart of the index you would say… “that’s not bad consider the run up!” I would say that plus, it bounced off the low of the day giving some hope the worst of the reaction is over… or is it? Only the future can tell us what happens from here, but it could have been worse, at least that is my interpretation.

Banks bounced on the day relative to earnings in the regional bank stocks. KBE and KRE both posted gains of 1.5% for the day. Last night I posted in the research notes to keep your stops tight as the negative sentiment from traders was weighing on the sectors near term outlook. Today erased some of that negative sentiment and put the upside back on the drawing board as investors showed some positive signs of buying. Financials as a sector did clear the $25.50 resistance of late. Still one of the leaders despite the negative bouts from traders pushing stocks lower short term.

Technology sector remains a mixed bag of data with the SOX index leading the downside falling 2.5% today. The good news is it did bounce of the low of the day. It was still ugly and it keeps the downtrend in place for the sector. The internet stocks have been the leader on the upside, but they were not enough to keep the broad sector moving higher overall. Warnings everywhere today about the technology stocks… we will watch as they will have a bigger impact on how the broader indexes unfold looking forward.

The VIX index remains flat despite the selling in the technology sector on earnings. Banks helped to offset the negative move in tech and kept the index from moving higher. This also shows the overbought concerns short term are still not a big worry for investors or at the least they are not creating in near term anxiety. I continue to watch this as the technical data is supporting oversold conditions. VXX would need to clear the $16.80 level to peak my interest in any opportunity as it relates to volatility.

Gold continues to see selling accelerate after breaking the $1140 support level. It held the psychological level of $1100 the last two day, but today managed to break that barrier. The next support is $1065 and based on the moves of late it may be heading straight there. Downside trades in the short gold miners ETFs have played out nicely the last few weeks.

Crude oil is the other commodity that has turned lower to break the $50 barrier for the first time since April. Despite all the bantering about the upside opportunity in crude by analyst and pundits… the supply data has been the bigger winner. As supply continues to rise, and the promise of more coming from Iran, the price continues heading lower near term. Today EIA (Energy Information Agency) supply data showed a climb of 2.5 million barrels versus the 1.9 million projected. Add a stronger dollar to the mix and oil could test the $45 level equating to the previous lows in April ($43.54 closing low). Not a good sign for crude near term and the energy (XLE) sector shows the negative views impact on the stocks.

Nothing is written in stone on the markets direction and the jury is still out on how well the economy will do going forward. This is one of those periods where you take what the market gives… NASDAQ 100 index gained 8% bottom to peak in eight days. It has eroded 1.7% the last two days. Taking money off the table is just as important putting money on the table. This is still a news driven market as the fundamentals sort themselves out. No fundamental evidence that the outlook is improving enough to drive confidence higher short term. Define your entry, stop and target… use money management to deal with the risk day to day.