Earnings Beat Up The Bears This Week

It was quite a remarkable week for the market. Just last Friday, the major indices were holding on to some key support levels by their fingertips, and many were talking about the "head-and-shoulders top in the S&P 500." On Monday morning we opened weak, and it looked like the breakdown was going to kick in and the bears were ready to push the market down.

Unfortunately for the bears, they underestimated their opponent. The mighty Meredith Whitney appeared at the CNBC studios and applied the "clothesline from Wall Street" move in the form of an upgrade of GS and a number of other banks. The bears were caught by surprise and scrambled all day to reposition, but the problem was that Goldman was ready to deliver a great quarter, which it did.

The next day, the market inched up a bit more as we awaited earnings from INTC. A mildly positive quarter was expected, but Intel came through with a better one. Now the bears, who were still reeling from Goldman move, were really on the ropes and had no choice but to cover shorts and try to find some longs.

What was really amazing about the move in the market on Wednesday and Thursday was how relentless the uptrend was. We barely paused for a minute and had just the slightest of dips. We finally rested a bit on Friday but stayed stubbornly strong. The folks who were stunned by the week's reversal were providing good underlying support, and we didn't pull back at all.

One of the main lessons of the week is the danger of trading in front of earnings reports. Earnings are a gamble. They can pay off if you are right, but you shouldn't think you have any edge. They are always a coin toss.

The market is now a bit technically extended but with so many folks out of position this week that will give it some underlying support. We have another big earnings report from AAPL on Tuesday and then MSFT on Thursday, but earnings should be less of a factor now.

Even though there has been some real celebration as folks once again declare the recession over, it has not made for easy trading. Embracing this market has required some real optimism, and there was little of that around just a week ago.

Will next week be rockier? Takes just 2 days to find out.......

A healthy market will churn like this for a while, maybe even dip a bit more and then produce another leg higher. An unhealthy market will see the dip-buyers lose interest and an increased inclination to protect recent gains.