Stocks were buoyant on Friday as the market reacted in a positive way toward earnings exceeding the extremely low expectations set by analysts for this first quarter of 2009. The positive reactions are likely to be muted compared to normal earnings seasons where companies who beat expectations are normally doing so by increasing and growing top line revenue and bottom line profits.

It is temporarily sort of a Goldilocks situation where the market wants to react favorably to anything good as mutual fund money wants to get back to work into the market yet there is underlying fear that a trap door can open anytime. We still are at an exact technical point where the case can be made for stocks to move either way.

A downward direction would just continue the downtrend that has been established for 9 months or so and a move upward would have to be triggered by a series of positive news events as powerful as economic reports showing the government actions taken these last 6 months are starting to work. If PROOF of such actions are quantifiable and convincing, a whole new wave of buying is conceivable. Data such as housing starts regaining strength, housing inventories decreasing, unemployment rates improving, lending activity increasing substantially or large unexpected gains in profits would be examples of such news but this it is way too premature to see such data right now.

So the question that remains is what stocks will do at the end of the earnings seasons, which mostly ends this week. We have the professional money managers who still want to get invested because a rising market while a mutual fund has large cash positions is a career ender for managers. So we have that force playing as well.

stock market commentary

The technical indicators are definitely signaling a short term sell signal for any long positions, which is the reason why many stocks listed below have notes to sell half of long position.  There was not much change in the market on Friday but take a close look at the Telechart Daily chart of VIX—X, the Chicago Board of Options Volatility Index as well as the T2108.  The S&P Oscillator, put to call ratio and the Smart Money-Dumb Money index are also flashing danger signals to our long positions.

Even though various indicators may be signaling to reduce positions, they can stay at an extreme level for some time before eventually being “equalized” by the market’s tendency to balance extremes but it is wise to pay attention to these indicators throughout your investing and trading career.

Stocks in this situation of coming out of a deep low in early March can peak by making a slow rounded top as opposed to a sharp drop and that’s what many of these stocks appear to be doing. 

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