Friday, July 30, 2010

Bulls On Parade; A Recovery From A Very Ridiculous Open

We had some ups and downs this week, and there were quite a few stocks that moved big on their earnings reports, but overall we ended up almost exactly flat. The IWM is up about $0.11 as I write, and the Nasdaq is down a little for the week, while the S&P 500 is up.

If you ask the bulls, they will say a flat market is a victory for them because it helped us consolidate the move off the July low and we didn't give back too much of the gain. We are still above the 50-day moving average and in good shape for another run at the June and July highs.

If you ask the bears, they will say they won this week because the upside momentum cooled off and we weren't able to hold the highs over the 200-day simple moving average of the S&P 500 around 1,115. With earnings season nearly over and the end-of-the-month strength, the bears are hoping that things will start to fizzle more next week.

In my opinion, the bulls have a better edge. The profit-taking over the past four days has been quite mild, and we have recovered nicely just when it looked like downside momentum was going to pick up. Another move over that 200-day simple moving average is going to trigger some stops, and it won't take much to take out the June high after that.

While that short-term scenario looks pretty good, I'm concerned that trading is going to slow significantly in August and September now that earnings are out of the way and the main focus will be macroeconomics. The economic picture is still mixed enough that it won't take much to scare market players on to the sidelines. On the other hand, I see quite a few stocks that have good numbers to provide some underlying support and that is going to help us.

Volume was light, but breadth was decent and the bounce off the poor open was another positive for the bulls. The bulls have the edge, but this week's battle will likely see some clearer resolution in the first week of August.

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