Traders Fight Through Earnings and Economic Reports

Pre-market futures are down, which will probably gap the market down at the open. Yesterday's Piercing Pattern on the Dow, along with the Hammer from last week, and the determined behavior of the Bulls in the face of bad news, is increasing the chance for a fussy bottom to the down swing in the 8,000 area. Earlier in the week I wrote about the short term momentum shift being at risk for another drop to 7,750. Yesterday's price action changed that probability a little, just like the day before's changed the probability on the Hammer.....Once again, this is the nature of the first heavy week of Earnings Season.....up one day and down the next.....

To illustrate the point:

Here are stocks that are up on earnings pre-market: AAPL, BBT, and MTB.

Here are stocks that are down on earnings pre-market: NOK, BNI, and SNE.

In addition, two economic reports came out this morning. Housing Starts / Building Permits missed expectations and Weekly Jobless Claims was worse than expected.

The net result is a drop in pre-market futures, and a Dow that could open 100 points lower out of the gate. This is the heart of the choppy price action from Earnings Season, so trying to nail a pattern on the daily charts to precision isn't going to happen. In general, if 8,000 continues to hold, then the momentum shift to an upswing stays on course. If 8,000 fails, then the Dow could drop to 7,750 or 7,500. Watch your, intra-day patterns and individual stocks. IBM was a nice bullish play yesterday (along with DO and several others I mentioned in VC). Today, there may be some bearish plays like a BNI, but also keep an eye on stocks like IBM that are set to pull back at the open and could bounce.

Don't get caught up in the freneticism, there's way too much news hitting the market right now, so keep your perspective about you. This day to day chop on the Dow between 8,000 - 8,250 is temporary, eventually it will resolve itself and a consensus will appear.

Here is a chart of the Dow:
(click on image to enlarge)

As of this posting, the Dow is set to open down in the 8,130 area, which is -100 points at the open. This isn't easy price action to manage for a swing trader with the up down up down day to day. That's ok, if I see a good intra-day signal on a stock or the market then I can play it, or I can sit it out altogether, and obviously, I don't need to explain why I'm not holding positions overnight.....We'll see what today brings to the table.....

7:25 am MT: Pre-market Update: MSFT just announced earnings. The company missed expectations, announced 5k job layoffs, and is down sharply pre-market after the report. Pre-market futures just took another leg down and the Dow is set to open -130 points. I'm not looking for the market to come back today after this report. It could happen, but yesterday's price action looks more like the Bulls hope and not market reality.

It is interesting to note that MSFT announced pre-market. I can't ever remember MSFT announcing before the open. As a Tech stock, they have announced after-the-close for as long as I have been trading the stock market.

7:32 am MT: Early-market Update: The open was right where I expected on the Dow, -130 points. The market is right at the mid-point of yesterday's Piercing Candle. This is the tipping point, a drop of 20 - 25 points from here could start a move back to 7,950 - 8,000. If the Dow can hold this area and build a nice base intra-day, then perhaps the Bulls hope can float the market. A move above 8,250 would clear the way for a push to 8,500 and beyond. A higher low on the 30m charts could open the door for a move back to 8,250. Outside of that type of price action, I'm going to assume a drop to 8,000 until I see whether we get the higher low on the 30's or not. The first clue will be a higher low on the 15's. Traders will really have there hands full sorting through all the news, especially the Softy news that hit just before the open, which was really unusual for MSFT.

12:00 pm MT: Intra-day Update: The 30m charts were the key time frame, just as I speculated above. We never got the higher low, and therefore we got the move back to 7,950. The first bounce on the 30m charts was at an equal low, which means the market is still range-bound, and still at risk for the drop to 7,750. For now, the range is 7,950 to 8,250 - 8,325 (which is basically the low and high of the Beardicat Zone).

Here is a current 30m chart of the Dow:
(click on image to enlarge)

Until the market breaks the range, then all short swings should at least take the range into account for entries and exits.

12:20 pm MT: Intra-day Update: The Bulls are making a big push right now to punch through the upper range. Given the nature of the news (mostly bad), the price action is revealing very resilient (or at least determined) Bulls. They really want this bad.....We'll see if they can punch through the upper range.....

1:30 pm MT: Intra-day Update: And the answer is.....no.....