Technology Takes Center Stage for Earnings

This is the week for tech stocks to report earnings and determine direction for the sector short term. Apple and Google both report this week, and both stocks have been under pressure from the sellers. Apple has seen investors sell shares and look for other opportunities. The stock has struggled to hold on to the $500 level of late. Google has seen less, but it has been under pressure of late attempting to hold above the $700 level. Nokia, Microsoft and SAP also report this week for added pressure on the sector. Intel set the downside momentum in place on Friday by disappointing relative to guidance.  The earnings were in line with expectations, but the fact they see more negative change in the PC sector didn’t sit well with investors. That leaves the parts/sub-sectors as an alternative to the whole. Telecom, software, networking and parts of the semiconductor sub-sectors are the leaders, and they will determine if the overall sector of technology can resume to take the market higher.

The bigger question is still focused on the economic picture both domestically and internationally. Can Europe continue to recover without a major incident? Will Spain, Italy, France, Germany, Ireland and others continue to fix their sovereign debt issues? Can China recover and get things back on line despite the slower economic picture in the US and Europe? Will Japan find the magic bullet to finally get growth back into the economic picture? Plenty to weigh out while we find the right mix of risk versus reward in the markets going forward.

The buyers (alias bulls) have still been able to convince the sellers (the bears) that they remain in control. Do the buyers have enough conviction to see the next leg higher succeed? Only time will determine how this will play out, but for now, the sellers are too cautious to challenge the move. This keeps the drift higher in play until a catalyst shifts the trend. Earnings may still be that catalyst.

The emerging markets (EEM) attracting buyers as the country ETFs continue to climb and set new highs. EEM has struggled with resistance at the $45 level even as specific countries have moved higher. Since the November low the sector has gained nearly 12%, but digging into the leadership has been the key. Thailand (THD), Mexico (EWW), Philippines (EPHE) and others have been leading the way higher. China (FXI) has re-emerged on the upside following some encouraging economic data. Bottom line… is the upside remains in play, but the degree of assent has me concerned. A pullback or test of the move would present opportunities for better entry point going forward.

Commodities are gaining interest from investors as oil jumps above the $96 mark and looks ready to challenge the previous highs near $100. Gasoline (UGA) is back near the $59.50 resistance again as well. Natural Gas (UNG) has found buyers to step in following the inventory reports two weeks ago. On Friday the ETF cleared the $19.80 resistance on the upside. Gold (GLD) attempted to break higher from the consolidation pattern last week, but tested the move on Friday. Silver (SLV) cleared resistance at $30.55 and looks ready to push higher short term. Coffee (JO) is at resistance at $35.30 and is looking for a push to break higher short term. Cotton (BAL) is testing the October highs and looking positive as well short term. The Agribusiness sector (MOO) cleared resistance at $53.80 and is pushing higher as well. This is a sector in which volatility remains a primary player, but the upside has been rewarded for those who are patient.

As you can see there is plenty to consider and watch going forward. The VIX index shows no volatility in the broad index currently. That unto itself is a concern, but for now we follow the trend and take what the market gives one day at a time. Watch the impact of earnings from the technology sector as indicator for the week.