European Fears Renew as Stocks Fall; VIX Jumps

Europe kicked off the selling with Spain and Italy taking on the brunt of the selling. The DAX fell 2.5% as the index fell in heavy volume erasing last week’s gains. Volume on the state side fell, but Monday’s have been light in general. Technology stocks led the decline followed by financials as NFLX bucked the trend and pushed higher. The VIX jumped above the 14 level as the fear index jumped to its highest level since the 3rd of January. Monday’s close didn’t help out the situation as sellers had the upper hand sending the market to the lows of the session. Today is just one day, but we did see a slight change in character as we have seen the market get support in the final 30 minutes. Our uptrend remains, but we are certainly on watch for our exit signals. It is no surprise Europe is back in the spot light has they have tried to implement protections that are simply band aids rather than real solutions. Iceland is a great example of what should be done, but the Central Banks are in control and would be overrun if Europe went the way of Iceland. Spain and Italy have been pounded by sellers with the DAX finally feeling the heat. In addition, Europe is facing a EURO who has been on a tear against the Yen and US Dollar. Exporters are feeling heat and with the Eurozone needing exports to fuel their economy their currency is not helping. Price action suggests further destruction. The first week of February has not started off well with today’s move. We were quite overbought after the big move in the market from the morning of December 31st. A rest here would be normal, but with the big declines in Europe a “rest” may be quite volatility. Stick with discipline and your plane and execute! The debate over the “great rotation” continues amongst market pundits. With the Federal Reserve buying $85bln in bonds a month how will yields go higher? If you aren’t going to fight the Fed in the stock market why would you fight it in the Bond market? Just follow the trend and it will treat you well. Short term Trends: TICKER ST TREND TREND CHANGE DATE CLOSE % SPY UPTREND NO CHANGE 2/4/2013 149.54 -1.12% IWM UPTREND NO CHANGE 2/4/2013 89.28 -1.21% QQQ UPTREND NO CHANGE 2/4/2013 66.48 -1.74% USO UPTREND NO CHANGE 2/4/2013 34.78 -1.61% UNG DOWNTREND CHANGE 2/4/2013 18.67 0.70% GLD DOWNTREND NO CHANGE 2/4/2013 162.00 0.34% SLV UPTREND NO CHANGE 2/4/2013 30.69 -0.29% DBC UPTREND NO CHANGE 2/4/2013 28.48 -0.35% FXY DOWNTREND NO CHANGE 2/4/2013 106.24 0.64% FXE UPTREND NO CHANGE 2/4/2013 134.06 -1.06% TLT DOWNTREND NO CHANGE 2/4/2013 115.54 1.28% UNG change in trend. Good news for those who heat their homes with natural gas!

S&P 500 trades higher for the 6th Consecutive Day as Volume Eases

Attention on the day was aimed at earning’s releases at the close of the day. Stocks were dealt a blow with the IMF cutting its global forecast to 3.5% from 3.6%. While not a big blow to a forecast, but the IMF pointed to Europe and its inability to grow as a primary concern. IBM and GOOG helped boost the tech sector on the day. IBM added 66 points to the Dow accounting for majority of the index gains. GOOG broke out during the session, but was unable to hold its pivot at the close. Volume was lower across the board as the market moved higher, but this has been a growing theme as price continues to be the primary indicator. One negative on the session was the inability for Small Caps to lead the session, but one day does not make a trend. Our uptrend continues to remain in place and we’ll continue to look for higher prices. During the after-hours session NFLX blew the doors off its earnings report. More importantly the company guided higher than its dismal estimates. The stock jumped another 30% in the after-hours session making any entry almost impossible. The stock has been beaten up, but has been trying to make its way back to the spotlight. A jump of 30% seems a bit extreme and will offer an exit for those who are long to book some gains. Will it go higher is anyone’s guess, but a 28% gap to the upside is a gift worth taking. AAPL earnings disappointed the market as revenues were light and guidance was below expectations. The stock printed a 480 handle during the after-hours session but has spent most of its time down 5%. AAPL has been the black eye for the market, but many tend to forget it accounted for 50% of NASDAQ’s gain early last year. The stock simply has run into the law of large numbers and the stock is simply over owned. Plenty of people will be in the stock looking to catch a bottom, but for now we’ll stay away unless we see a buy signal. For now the stock is dead to us on the long side. As of last night the companies reporting earnings 70% of them have lowered first quarter outlooks. Looking at profits for the fourth quarter stands at 3% against expectations of 11% which will certainly weigh on those relying on fundamental models. AAPL and banks accounted for the majority of earnings growth during the past 12 months and with only 3% growth in place with banks reporting should hint at what is to come for the first quarter of this year. It is anyone’s best guess what multiple the market will trade at, but if growth continues to slow in the names that have been the engine of profits the market will reprice. AAPL will certainly put a lot of pressure on the NASDAQ tomorrow. Stick to your trading plan and let the noise from Wall Street fall on deaf ears. Short term trends: TICKER ST TREND TREND CHANGE DATE CLOSE % SPY UPTREND NO CHANGE 1/23/2013 149.37 0.16% IWM UPTREND NO CHANGE 1/23/2013 89.00 -0.24% QQQ UPTREND NO CHANGE 1/23/2013 67.59 0.61% USO UPTREND NO CHANGE 1/23/2013 34.61 -1.14% UNG UPTREND NO CHANGE 1/23/2013 20.00 0.15% GLD UPTREND NO CHANGE 1/23/2013 163.21 -0.28% SLV UPTREND NO CHANGE 1/23/2013 31.19 0.22% DBC UPTREND NO CHANGE 1/23/2013 28.09 0.11% FXY DOWNTRENDNO CHANGE 1/23/2013 110.53 0.04% FXE UPTREND NO CHANGE 1/23/2013 132.16 0.01% TLT DOWNTRENDNO CHANGE 1/23/2013 120.27 -0.15%

Dow and S&P 500 Lead Stocks Lower as NASDAQ Finds 200 Day Support

More selling hits the street despite yesterday’s end of day rally. The 200 day provided the NASDAQ with some support, but the index failed to put in a big turn around day. Earnings continue to pour in and are only helping a few stocks. FB reported after-hours and is seeing a rush of buyers into the stock, but FB is not the norm. Volatility spiked closing above its 200 day moving average for the first time since the beginning of June when our most recent rally began. Fear has once again crept back into the market, but we lack the panic we normally see in a market bottom. Price action continues to be weak with volume still big on the downside and we remain in sell mode. Earnings season has crushed many growth stocks, but they continue to pile up. BWLD is just another victim to the earnings disaster. FB and PNRA are two bright spots, but they are the exception to the rule. NFLX was hit hard again in after-hours as the company failed to reach its user target. The stock had seen some life, but for a little over a year has been taken to the woodshed. CMG is in the same camp. The ultimate growth stock AAPL reports on Thursday and after failing to rally after its announcement of the iPad mini Thursday’s report will be important to the stock. AAPL has touched its 200 day, but has yet to top out since the 2009 bottom. More than 3 years later the stock has had a tremendous run and Thursday we’ll see if the stock can find the juice to resume hitting new highs. Commodities continue to pull back as crude oil briefly hit an 85 handle on the day. Gold and silver continue to pullback after their run up from the announcement of QE 3 or what we call QE forever. The market has now pulled back roughly 6% (NASDAQ) from the QE announcement. The market dropped roughly 3.5% from its peak from the QE2 announcement. At the moment we have support at the 200 day for the NASDAQ while the S&P 500 has yet to reach its 200 day. The election is two weeks away and it is bound to have an affect on the market. The most recent pullback has not been kind to leading stocks and it appears we’ll see this continue given the reaction to earnings as of now. Have a plan and trade. Cut losses and ride your winners. Volatility is finally showing some fear in the market and will at some point signal a possible bottom. Cash is king for now.

Closing off the Lows, Stocks Show Resilience

While market pundits wait for a Greece and its creditors to come to an agreement, stocks quietly put in a solid day. At the open it did not appear stocks would have a good day as the market pulled back nearly one percent. Small cap stocks were having a difficult time, but a solid reading from the Dallas Fed helped spur buyers step up to the plate. Volume ran lower for much of the day and helped the market avoid a day of distribution. This is the type of action you want to see as the stock market consolidates its gains and if the market continues to act like this it will bode well for the future.

Yes, the market may be a bit overbought still, but the recent action is quite encouraging. Recent price action in AAPL, INTC, and MSFT (the big dogs) is also very encouraging. A sore spot in this rally is the inability for the IBD 85/85 to show any relative strength. This index has been stuck in neutral for quite some time, but pay attention any pick up in strength would be a very positive signal. As we head into February I would expect a choppy month as February tends to be a tough month for the market. If this type of action continues it will only set us up nicely for a big rally.

The backdoor QE 3, the Federal Reserve dollar swap program is a precursor to what will likely be another round of quantitative easing. It is no secret during election years the government will do its best to prop up the market. You can bet your bottom dollar Obama and his administration will pull out all the stops! The problem isn’t just related to democrats as both sides are guilty. This does mean we’ll likely get a rally from another liquidity injection. QE 2 did produce some big winners including NFLX so it would be a prudent move to stay on top of this market. You do not want to miss out on gains!

Always cut your losses short.