Bulls Climb a Wall of Worry

Earnings continue to come in worse than expected this morning after the negative earnings from last night. AAPL, TXN, and SNDK have pushed the Naz futures way down pre-market, which means the Naz will likely gap down hard at the open. The SPX and Dow are also looking to have negative opens on the AXP, WB, DD and other earnings. CAT looks like it may be up slightly after earnings. BHI in Energy looks like it will be up sharply after earnings. The market is probably going to roll over short term and things may play out today as I posted last night. We shall see.....

5:00 pm MT: The stock market is following the old adage that "Bull Markets Climb a Wall of Worry." The saying is applicable to situations where much of the news appears to be bad, and yet the market goes up. Today, the market was set to tumble over on a slew of bad earnings reports and ongoing macro-economic issues. However, a drop in oil prices put a strong bid under the market and sent it chugging up the charts. If you reason the oil prices you can see that a drop into the mid 120's is not that big a deal, especially given that the recent slide from the 148 area to the 128 area hasn't even put a dent in $4.00 a gallon gasoline. Nor has the drop changed the supply and demand equation globally. Nevertheless, the bulls are pushing forward. The climb may be more of a short term to intermediate term effect, but the market seems to be determined to move up in spite of bad news. Right now, the Hammers on the Weekly Charts on the major indexes (that I charted for you on the Saturday post) are playing out. The chart signals on the major indexes are pointing towards another 1-2 days of upside in the current short term upswing, and possibly a change in the intermediate term downtrend. The Dow has climbed right into the middle of a short term resistance zone, but could still run for a day or two, especially given that it could eventually trend towards the top end of the long term channel.

Here is the near term chart of the Dow showing the short term resistance areas:

(click on image to enlarge)

Here is a long term chart of the Dow showing the Hammer on the Weekly charts starting to play out:
(click on image to enlarge)

The Naz and the SPX are also bouncing in a similar manner on their respective charts. It adds up to a probable 1-2 days more of upside, and perhaps a little longer. Shorts don't want to be short right now, and dips are getting covered in a blink in almost every area outside of Energy and Commodity stocks. The sector rotation seems to want to continue a little longer and there aren't any key signs of reversing yet.

There were a lot of Rising Three Methods continuation patterns today, I will show some charts in various sectors to demonstrate the pattern:

Here is GIS in Food & Beverage:
(click on image to enlarge)

Here is MDT in Healthcare:
(click on image to enlarge)

Here is RTH in Retail (which is also forming a potential Reverse H&S):
(click on image to enlarge)

Here is GS in Brokers:
(click on image to enlarge)

Here is a Watchlist for stocks that are either Bullish or starting to go Bullish:

Financials: Brokers: MS, GS Insurance: PRU (Reverse H&S), LNC, MET Banks: JPM Regional Banks: STI, PNC, RKH, STT, NTRS Other: TROW, COF, ADS

Leisure: CCL, WYN

Biotechs/Healthcare: BIIB, COV, STJ, AMGN, MDT, BDX, BAX, CELG

Transports: JBHT, UPS, PCAR, FDX

Railroads: NSC, BNI

Materials/Manufacturing: CAT, CMI, VMC

Retail: WMT, RTH, ANF

Cyclicals: DD, UTX, ITW, DHR

Note: GIS, SOHU, IBM, JEC, APH

Also note: Energy is Bearish but Oil Services is hanging in there pretty good: BHI, SLB, SII. Coal is Bearish but FDG is hanging in there pretty good, and Chemicals are Bearish but TRA is hanging in there pretty good.

Here is a Bearish Watchlist:

Utilities: FE, ETR, EXC

Energy: APA, COP, NE, EOG, APC, MUR, NBL, OXY, ECA, NBR, DVN, HES, UPL, XTO, CHK

Steel: NUE, X

Gold: AEM, GG (both formed H&S Tops today)

Coal: BTU, ACI, CNX, MEE

The selling in Energy and Commodities looks like it may continue a little longer, which may keep the short term bounce on all the bullish areas above alive for another 1-2 days or longer. But remember, we still have tons and tons of earnings reports due out the next several days which can change the tone of the market.

It looks like the combination of oil prices going down, an oversold market last week, and a number of earnings reports coming in less than catastrophic are acting as the catalysts to bounce the market now.

I am working on a way to record my (paper) trading and market analysis in real-time, and then post the whole day to you in the evenings so you can review what I have done for the day.

Here is a very brief synopsis of today: I sold the RDC calls for a 1.25 profit or 29% gain. I stopped the ABX calls for a .30 cent loss and the GG calls for a 1.20 loss. I sold the TRA calls for a final profit of .34 cents, and I stopped the CAM calls for a loss of .20 cents. I also nibbled on calls for BNI and MDT. I am still playing the AAPL strangle, but the stock went too far today for my taste. I may not give it a whole lot more room, we'll see if it rolls over here in the next couple of days.