Tuesday, January 27, 2009

Morning Musings

Although the earnings news from this morning is far from inspiring, the weakness inherent in the results, comments and guidance hasn’t really been all that surprising.

Many technicians have been talking about how this market is in a sort of technical limbo right now. All in all, this earning season, so far, has failed to produce any major downside bombshells. In fact, reports from the likes of AAPL, GOOG and IBM have actually been rather decent. Sure, the ugly reports have triggered some losses in individual stocks – indicating that the bad news may not have been fully priced in on a company by company basis – but those losses have yet to really spill over into the broader market. The only really notable exception was GE last week, which ended up weighing down the industrials and, in turn, the Dow. Meanwhile, the overall news flow continues to be dismal, but that too has yet to really pressure this market lower.

The net result is a market that is barely clinging to tenuous technical support levels, which, if they fail, will mean that a possible trip to the November lows won’t be that far off. We still have plenty of room to move to the upside, but as we waffle around here close to recent lows, the oversold conditions we had at the beginning of last week are being worked off and that means the springboard from which we could have launched a nice rally has all the sudden become a lot less, well, springy. The problem, as we’ve seen, is a general lack of energy and an unwillingness for market players to push to the upside when they have the chance, and that can eventually cause folks to turn their eye towards shorting and/or selling into strength.

Perhaps market players are waiting for more clarity in regards to the stimulus package, or maybe they’re still wondering how any short-term boost the economy might get from all of the associated spending will balance against the nasty consequences that will surely come down the pike at a later date. Government actions never leave home without their trusty U.I.’s (or, “Unintended Consequences”) in tow, and you can bet that there will be plenty coming along for the ride with this one. Never mind the fact that most, if not all, of the actions are already pretty well anticipated.

The bottom line is that the bulls have a slight advantage here, but we’re still faced with a market full of traders looking to flip quickly in any strength, and until that changes, it’s going to be difficult for any momentum to the upside to build.

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