Wednesday April 20th 2011
Intel Ignites Market....
by Jack Steiman www.SwingTradeOnline.com
Going into the earnings reports last night the focus was clearly on International Business Machines Corp. (IBM), the beast of the big boys. This stock had been on fire and was rocking on all cylinders. No one thought the focus of the evening should be on perennial loser Intel Corporation (INTC). Always disappointing the street. Always saying things are alright but never wonderful. The stock couldn't get out of its own way lately. So we had a blasting IBM and a disappointing Intel. What happens? IBM is great, but not really great, which means it was time for a small breather in the stock price. On the other hand, Intel pulled some magic out of their hat with a powerful report that included increasing margins, and looked better for the future. The result? Intel exploded, and many of the technology stocks are on a rocket ride after hours. The market is once again doing something no one, including yours truly, would have expected as even remotely possible.
Today we saw the excitement this caused in terms of price, but we still have no breakout in this market. What today accomplished was it put a large gap up in it, which is bullish, but also took the existing handle towards the top and away from near-term break down danger. The market was very close to breaking lower, but this did not happen a few days back. When all was said and done today we have to look into the future a bit at the new earnings reports that come out to see if and when we can make the breakout. It was solid day today thanks entirely to Intel.
It's interesting how many of the reports last night were not received very well. With the stocks I'm about to mention you'd have thought today would have been a down day. Shows you the power of this bull and how rotation continues to be the answer as to why this market rides higher overall. CSX Corp. (CSX), International Business Machines Corp. (IBM), Wells Fargo & Company (WFC), and Intuitive Surgical, Inc. (ISRG) all struggled on their reports. Wynn Resorts Ltd. (WYNN) was great as was Intel. Juniper Networks, Inc. (JNPR) was more or less flat. Some big time leaders sold off, yet the rotation theme carried the day. That's how you know the bull continues onward and upward. Earnings are key, but the market seemed to focus on Intel more than anything else because of how much they have struggled lately and the powerful effect it has on those other companies all over the place that thrive or die on how Intel does.
Business grows in a big way to so many others when Intel is doing well, thus, the perception is that things will be improving all over. Chips are in everything, and so many other big companies are affected positively when their business is rocking. It gives the perception that the economy is doing very well and will continue to only get better because they raised their outlook. Wells Fargo stunk, but financials have stunk up the place for years. IBM just needed a breather. Intuitive Surgical wasn't too bad and doesn't have that branch out affect. CSX Corp wasn't wonderful, however, the CEO said things will only get better. Intel was simply the key to understanding the real economy, and they hit a home run. The market just wasn't that interested in too many others, and thus, the reason for today's strong trading day.
Now let's focus on the financial stocks. They are truly poor stocks. The financials have been a laggard for so long it's hard to remember how far back it goes. I only know it's been a very long time, and that will likely only get worse in time. Certainly nothing is pointing to things getting better anytime soon. It’s an absolutely horrible report from Wells Fargo, a leader this morning. The stock was crushed today. The BKX (KBW Bank Index) struggled all day because of that report. If it wasn't for Mr. Bernanke's printing machine, a lot of these banks would not survive.
Think about all that he is doing to keep these banks afloat, yet they still have horrible reports. Now, we all understand on a much deeper level why he's doing what he is doing. If not for the printer this country would be in some very deep trouble. The message from the financials is simply to stay away from financials for now. They may have their moments, but they haven't been able to sustain any real momentum for years. There's nothing to suggest they will any time soon.
The handle, even with today's action, has not been broken to the upside. That only takes place if they take out strong resistance at those gaps and recent highs. 2840 and 1344. The inverse patterns measure up quite a ways if we can get above those levels, but it won't be a simple thing to do for the bulls. It'll take time and further whipsaw action to make the move. There will be nights of good earnings, and of course, nights of bad earnings reports. The bad nights will cause some gap downs while the good ones give us gap ups.
All of it is still just noise until we can cleanly break back above 1344 and 2840. If we clear those levels with some force on a closing basis the bears will be in some very deep trouble. The bottom of the handle is set as well at 2706 Nasdaq. It's still a range of over 100 points which means we can whip around quite a bit. Big exposure doesn't occur until we break away cleanly, so please, just keep that in mind.