Wednesday, October 20, 2010

Stocks Rebound from Tuesday’s Losses

Late day selling ends stocks off the highs as volume slows

Late day selling put a cap on the day’s excitement as stocks rebound from Tuesday’s heavy distribution day. All eyes would point to the Federal Reserve’s release of its beige book at 2pm EST. Prior to the release the market was able to build upon its gains as it moved higher. Volume simply couldn’t keep up with Tuesday’s pace ending lower across the board. The end of the day selling certainly did not inspire confidence, but a few after-hours earnings reports helped soothe any pain. A nice recovery, but we’ll need to see the market flash more accumulation.

NFLX earnings and its subsequent push in after-hours trading gave a cheer to traders. The stock continues to be a favorite of shorts due to its “valuation.” The biggest winners of all time tend to have a high valuations are due to the demand for the stock. Regardless, NFLX stock is a true winner and continues to be a top stock. NFLX is looking to follow in GOOG’s footsteps post earnings release and avoid an AAPL like day.

Another darling in after-hours trade was EBAY as the stock shot up more than 7%. After-hours trading can be misleading, but with EBAY posting strong numbers the stock will look to move along with NFLX. Although its quarterly report didn’t come close to matching NFLX’s growth the report was strong considering the size of EBAY. The NASDAQ will get a boost from EBAY and NFLX

The market remains in an uptrend even with Tuesday’s distribution day. Despite who CNBC parades through their studios or who Bloomberg throws on the radio we have a viable uptrend. History suggests bull markets do not last longer than 18 to 24 months, but for now this rally from March 2009 can still go higher.

From a historical perspective, one our members have heard is we are likely heading for major headwinds over the next 6-12 months. Despite what Ken Fisher or other bulls may squawk about mid-term elections it is highly likely we see a correction of more than 20%. We could even delve into a 1940 to 1942 type market where we simply roll over and take out our March 2009 low much like the 1942 took out the 1938 low. Anything is possible, but for now we are focusing on the long side until we begin to see more “topping” signals from the market.

This market will more than likely push higher, but remember to always cut your losses!

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