Earnings Season Trickles to a Close

Pre-market futures are down slightly this morning, most likely on profit-taking from yesterday's big move. Earnings Season is winding to a close with a steady flow of reports, albeit less big name companies than the past several weeks. This morning has the feel of consolidation of yesterday's excitement rather than the feel of the monkey ringing the bell and everyone grabbing their cheese and running for dark holes to hide. So I'm looking for something fairly orderly in the price action and then more pushing back towards yesterday's highs, perhaps even a little beyond.

There isn't enough in the way of big-name earnings reports or major economic releases (although ISM Services is due in about 20m) to drive the market. The price action today will most likely be based purely on technicals and profit-taking. In other words, support and resistances will be catalysts for both profit-taking and buying of dips as traders linger through the afterglow of yesterday's sunny price action.

The DIA is a little easier read this morning, although the momentum still is stronger on the SPY, so I will refer to both.

7:45 am MT: The DIA did wiggle back a little out of the gate and then reach slightly above yesterday's highs, which was not surprising as I indicated. The reach to new highs was met with some profit-taking right away. The market is getting a little tired short term, so this morning will be about fits of profit-taking along with bouts of dip-buying. We will probably see consolidation go back and forth for a little while, which means that individual stocks may have some momentum here and there, but the market will probably hang around to gather its strength for another push to new highs. So far, the price action is fairly orderly as I speculated.

7:53 am MT: Here is a 5m chart of the DIA:
(click on image to enlarge)

The short term support and resistances are pretty clearly defined. A drop below 83.50 would be a red flag for the bulls today. A drop below 82.50 is most likely unrecoverable for the bulls and an indication of severe enough profit-taking that it could be a sign that the monkey rang the bell.

7:53 am MT: Here is a daily chart of the DIA:
(click on image to enlarge)

The DIA is pushing right at a fairly key resistance on the daily charts. So this lends itself even more to the concept of the market pausing and gathering itself as fund managers contemplate whether they want to try for one more push beyond 85 (8,500 on the Dow) or if they should vacate the prow of the ship and head for the dingies. The Dow itself actually exceeded the 8,400 resistance line yesterday, but both the DIA and the Dow are basically in the areas of important resistances. So watch for orderly price action intra-day and the start of a push before climbing on to calls, and look for more momentum on individual stocks rather than the index ETF's.

8:22 am MT: Here is a 15m chart of the SPX:
(click on image to enlarge)

The SPX (market) is traveling along a steep-ish intra-day trendline that will probably not hold, but will see a break through in a sideways and perhaps even a slightly downward direction. The SPX has resistance at 920, although the Dow is running out of gas in a resistance area right now, so this will be a battle between the two indices today. A drop below 892 on the SPX is a red flag for the bulls today. A drop below 880 is most likely unrecoverable for the bulls and an indication of severe enough profit-taking that it could be a sign that the monkey rang the bell.

8:33 am MT: The SPX did break the steep-ish (new important technical term, please memorize.....) intra-day trendline, so the profit-taking continues. I speculate the dips will buy the bulls.....I mean the bulls will buy the dips. So watch for an orderly consolidation and reversal of the profit-taking, there may be one more push in the bulls today. Ideally the SPX holds the 898 - 900 area and then rallies back to about 910, but a drop as far as 892 - 894 is acceptable. I want to see some strength at intra-day support, however, before I get involved with calls. If the market drops all the way to 892 - 894 before holding and trying to push back up then I won't look for new highs but rather a Rectangle type support and resistance price action today between the lows and the 900 - 905 resistance area.

11:55 am MT: The market continues to consolidate in a Triangle pattern not too different from the Rectangle I was expecting earlier. If the SPX pops the Triangle in the next few minutes then the market may reach back towards the highs of the morning. For now, traders are content to keep lingering in the warm fuzzies from yesterday and not worry too much about today. We'll see if they decide to get serious about today in the next few minutes, or if they just stay in linger mode for the rest of the day. This price action is why I warned to look for stocks (with some momentum) to trade today and not the index ETF's.

Here is a 30m chart of the SPX showing the Triangle consolidation:
(click on image to enlarge)

If the SPX breaks above 902.50 then it's probably headed for a test of the highs in the 907 - 908 area. The price action, for all its consolidating and grinding intra-day, is actaully staying fairly tight, which is more indicative of at least an attempt back at the highs of the day.

12:27 pm MT: The SPX failed on an attempt to break the Triangle to the upside.

Here is a 30m chart of the SPX showing the failed breakout:
(click on image to enlarge)

When price action travels that far into the apex of a Triangle and then has a failed breakout, then the Triangle often morphs into a Diagonal Channel. The mid-point of the channel becomes the minimum target and the far end of the channel becomes the max target. The 897.50 area on the SPX needs to hold if the market has a chance at testing the highs in the last hour. If the SPX doesn't hold 897.50 then it may go test 892.50.The bulls are still hanging high and tight, so I don't expect much selling even if the consolidation reaches down the channel a bit. This market consolidation keeps hanging around like it wants to take another shot at a push to the upside.

1:50 pm MT: The market did take another shot at the highs of the day, as was speculated earlier. The price action today won't shake the earth or thunder the skies, but it did hang around in a quasi-bullish manner all day, which means traders are hoping for another push tomorrow. Like I said earlier, the battle is between the Dow at resistance right now and the SPX with resistance another 15 points higher. We'll see what tomorrow brings.