Sharp Reversal

Just when you thought the market couldn't possibly do it again, there was a huge V-shaped bounce today, and we finished the week at the market's highs. Even the perma-bulls have to be a little surprised at how quickly this market reversed and moved back up.

The primary catalyst for this impressive action was stodgy old INTC. Expectations were quite low due to concerns about slowing personal computer sales, but low inventories and strong corporate sales more than made up for that in when it reported quarterly earnings earlier in the week. Market players were caught flat-footed and many were leaning the wrong way in the technology sector, which has been struggling lately. The scramble to reposition, and the inability of the bears to fade the move, resulted in steady buying.

AAPL pulled off a similar surprise on Wednesday night, but it had already bounced back quite a bit form the lows it hit on Monday, so the impact wasn't quite as dramatic. The bears who tried to fade the second big gap up were equally unsuccessful and they capitulated into the close and went out strong.

It is almost the exact action that served the market so well from September 2010 to February 2011, and then again in mid-March 2011. Once the market starts to run, it goes straight up, causing great frustration for underinvested bulls and anticipatory bears.

Next week promises to be equally challenging. We have a slew of earnings reports coming, but none that are likely to be as market-moving as INTC and AAPL were. That is good for individual stock picking and will likely lead to more choppy action.

Technically, we repaired quite a bit of damage with the strong action the last couple days. Things are a bit extended and need some consolidation, but the market is back above key resistance and the February highs are just a stone's throw away. The bulls will be looking for the breakout, and I suspect the bears may let them have it before they make an effort.

long INTC