Will the Broad Market Hold Key Support?

Can the broad indexes hold support again? The S&p 500 index is sitting on the first level of support at 1430. If the index breaks lower it should hold above 1400 near term. That of course depends on investor confidence looking forward. The NASDAQ 100 index held support is 2661 after breaking the first level support near the 2750 mark. The big question mark hanging over the broad indexes currently is the catalyst? Where or what will provide the boost needed for the broad indexes to move back towards their previous highs. Earnings? Economic outlook? Stimulus? We have already tried a some of each of these and none has produced more than a sight bump in prices. Thus, the catalyst has to come from something bigger and more believable. The key is holding support while the catalyst is presented in a chart moving fashion. Anything less is likely to see the charts test lower. We have to be focused what develops and offers the best investment opportunities.

After hours earnings were more of the same in some cases as CAT missed on revenue. There were some positive announcements that could reinforce the late day rally on Monday. Texas Instrument, Yahoo and Western Digital offered some signs of hope for investors. The key currently is the outlook or forward guidance. Yes, missing earnings is bad, but what companies see on the horizon is what motivates investors. So far 18 of the 20 companies providing guidance on the S&P 500 Index revised their estimates lower in data released by Goldman Sachs on Monday. Corporations are simply showing a lack of clarity going forward. The economic slowing, earnings, and slowing sales are keeping estimates low relative to earnings, and the cash reserves high. Companies are not hiring or spending unless it is overtly necessary. This is a major issue for confidence and a willingness of investors to step into the markets wholeheartedly.

Despite all the negative media about earnings, and all the concerns about the economic picture slowing, the index is down less than 1% since the start of the earnings period. Investors are still willing to hold stocks and in some cases step in and buy stocks. The sentiment¬†is still neutral to positive. In fact, if it weren’t for the positive spin put on the current direction by stimulus, the markets would¬†likely have¬†fallen more in line with the current data reports.

Apple found buyers willing to step in and buy before they announce earnings on Thursday. The stock jumped more than 3% on¬†the day to close at $634 and well above the previous support of $623. They are holding a company event on Tuesday in which many believe they will announce¬†a new¬†mini iPad. The implied boost to an already dominating market share helped investors believe enough to be willing to put money to work in the stock. Watch how this plays out¬†moving towards their¬†earning’s release.

Microsoft will release Windows 8 completely new operating system on Friday. The bigger question is will the stock react to the release following the miss last week on earnings? Will the new release turn into another dud like so many Microsoft products? The release of Surface, Microsofts tablet entry, has been nothing short of a big yawn. Some analyst are comparing the Surface tablet to the Zune, Microsofts answer to Apple’s iPod for music. There is a window (no pun intended) of opportunity for Microsoft to offer a cloud based product giving them the upper hand if they can get the operating system right. This is a story worthy of our attention going forward. Windows 8 is rolled out officially on Friday. With Apple’s meeting on Tuesday relative to a smaller tablet, and Microsoft’s official release of Windows 8 on Friday, investors will get a first hand look at the future of tablet¬†market. The operating system could¬†prove to be a winner for Microsoft.

All said, today is still about the support levels for the major indexes. If they hold the upside opportunities remain in play. If they break lower, the question is how far. It is important to protect against the downside and stay disciplined relative to your holdings and potential risk of further selling.  Use your stops and remain focused on your goal.