The $SPX closed up 0.18% to finish at 1196, as earnings season kicked off with a whimper. Even after the closing bell, with $AA reporting an earnings miss, the reaction has so far been relatively tame as the stock is trading down around 0.50% after hours. Going into today, many expected some sort of blow off top, given the Greek news and short covering in the Euro. While there were plenty of pockets of speculative strength today, such as in $ABK and $FNM, the overall tone of the market was cautious optimism. Frankly, it is hard for me to call any kind of a top with that much hesitation by the bulls. Ironically, if the market had been up 3% today, I probably would have been far more concerned about some kind of blow off top. Instead, we remain in the vacuum, drifting up to Summer 2008 resistance above 1220.
Despite the tepid action, I still believe it is prudent to have more cash than usual on hand during any earnings season. There are simply too many extra variables in play when companies release earnings and hold conference calls. You must always think about your potential reward/profit within the context of the risk involved. Besides, it is far more favorable to be able to take advantage of an overreaction to an earnings miss or beat by being in more cash than usual.
As for my trades today, my two big winners were $AIG and $KLIC. I sold out of $PSYS at a break even price because the stock is acting like dead money, and I initiated two new starter positions for long swing trades in $CSIQ and $CLNE. I posted a chart of $CSIQ last night, and I like the way it seems to be developing. $CLNE has been getting crushed the past few days, and it looks to be a great long swing setup (See chart below).
I still believe the correct strategy here is to play only the best individual setups and to have a little extra cash on hand. I do not think holding any shorts in size at this point offers a good risk/reward profile. The bears are still in danger of getting killed in a blow off top. Again, things could change very quickly if we get up to 1220-1230. However, for now bearish positions should only be used as defensive hedges.
If you enjoy the content at iBankCoin, please follow us on Twitter
What do you think the chances are of a double dip once we hit that level?
The short answer is the chances are very low of a double dip IMMEDIATELY following us hitting 1220-1250. Based on previous secular bear markets, which I think we are still in, the most probable scenario is a 20-25% mini-bear market whenever we end this cyclical bull–which I think we are also in. However, that relatively major top could still be years away. If and when we hit 1220 -1250, we could easily have a repeat of 2004 and go sideways for the a few quarters and then resume up towards the all-time highs.
In order for us to get a double dip, in my view we would need to have another 2nd Quarter 2008-style inflationary head fake that helped lead to the deflationary crash in the fall (Hugh Hendry predicted that). Hugh also predicted we would have ANOTHER inflationary head fake which would lead to another deflationary crash after that, so we may be in the early/middle stages of seeing that happen.
Here is a long term Nasdaq chart http://chart.ly/yktgp4