Will Things Get Tougher For The Bulls?

The action today was a textbook illustration of a sell-the-good-news reaction. After the close last night, a number of folks were breathless with excitement over how great the INTC earnings report was. By any measure, the numbers were quite strong, but the problem was that they really didn't come as a big surprise. The stock was up strongly in front of the news, and many of the folks who were anticipating the positive report were happy to lock in gains as soon as possible.

JPM this morning also experienced a sell-the-news reaction to its report, which was also quite good, but the market simply was ripe for some profit-taking and that is what we got.

Last quarter, Intel also experienced a sell-the-news reaction, but the big difference was that it didn't spill over and affect the broad market. We shrugged it off and kept on rallying as Intel was pounded lower for weeks.

Another thing that occurred last year that is keeping the bulls optimistic is that we almost always immediately recovered from bouts of selling like we saw today. The bears were simply incapable of building any downside momentum. Those who made some sales into weakness almost always felt like fools a short time later as the market quickly went straight back up.

So the million-dollar question is whether or not it's different this time. Is this technically extended market, which hasn't had a severe pullback in quite some time, finally ready to succumb to more severe profit-taking as earnings begin to roll out? Is this the time when the bulls will finally fail to immediately turn us back up after we stumble for a day or two?

If I knew the answer to those questions, I'd be writing this from my 200-foot yacht in the Caribbean. What I do know is that is that the action today was poor and that we should increase our vigilance to make sure we don't find ourselves trapped with too much long exposure should the market fail to act as positively as it has in the past.

Overall we still haven't suffered any really significant technical damage, but a move below 1125 on the S&P 500 would be quite worrisome. This may indeed just be another one-day hiccup, but the fact that it came on very strong earnings news isn't something we should dismiss too quickly.

We have lots of big earnings reports next week, starting with C on Tuesday morning, so rest up and be ready for some action......