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MARKET WRAP UP 10/18/10
After drifting higher in a rather uninspired manner for most of the session, the S&P 500 staged a final hour rally to finish up 0.72% to 1184. Breadth was positive, as financials bounced back impressively from last week’s heavy selling. However, it was not a sea of green, as some areas of technology and consumer discretionary struggled. The day played out in way that market observers have become familiar with recently, as bears who sought to pounce on any sign of a rollover were deeply disappointed by a boring market that seems destined to squeeze higher.
Aside from the action that we saw during regular market hours, there appears to be some real excitement being generated this evening. $AAPL, $IBM and $VMW, among others, are selling off hard after reporting earnings. As you might expect, the serial top callers are out in full force declaring this the end of the rally. Seeing as all three of the aforementioned stocks were extended coming into their respective earnings reports, I am not surprised to see weakness in those names, Popular, high momentum issues often bake in impressive earnings long before the actual numbers are released. Thus, a “buy the rumor, sell the news” investor psychology is common with chic stocks, such as Apple.
Even if the potent selling in $AAPL, $IBM, and $VMW carries over into tomorrow, the bears have an awful lot of work ahead of them if they expect to reverse the uptrend that began in September. At various points throughout this rally, the broad indices have brilliantly absorbed heavy selling in the cloud-computing names, materials, and financials. While this time may be different, and the market could easily sell-off along with Apple, I am reluctant to go against the prevailing trend until I see some more hard evidence in the price action.
Eventually, this market will experience, at a minimum, a sharp 3-5% correction. While many charts appear extended, others are setting up impressively. Cherry-picking the frothy names and ignoring the ones that have formed sound bases is the sign not only of a serial top-caller, but also of a long-term money-loser. If you are wondering where the one-trick pony bears have gone since September, you should probably check the same caverns where the bulls were hiding in 2008.
Instead of choosing a gang and running for cover when the rival crew is in control, a better approach is to avoid that neighborhood altogether and focus on rigorous daily work, while respecting the prevailing trend, price action, and volume.
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