Friends
Earnings season has begun, and stocks will take their cue each trading day from various company reports. Alcoa led us off with a nice earnings report early in the week, but as has been the case for the last several quarters, the stock sold off a bit on the good news. We will watch to see how stocks react to each company report. After the close last night, Intel had a very nice earnings report. Let’s see how the stock reacts today and into next week to determine what was built into the price and what was not. Companies whose stock prices have risen sharply into the earnings release, often sell off on the good news. These next couple of weeks will set the tone of the market for the next few months. Again, we always believe that how a stock reacts to news is as important as the news itself.
The S&P 500 cleared our upside resistance level yesterday, closing near the 1283 level. We need to see if the market can hold this move for the next few trading sessions. 1273 becomes a new support level that we will watch for. As we have noted in our quarterly outlook, the flow of money from bonds to stocks seems to be happening as we suspected. This will be evident if stocks continue to rise regardless of earnings news or macro-economic developments.
The economic numbers continue to be mixed but with a slightly positive bias. Inflation seems to be a little hotter(as the Fed would prefer), but mainly driven by extremely volatile food and energy prices. Weekly unemployment claims went back up this week, but it is difficult to judge the seasonality affecting those numbers. All eyes will be on the continuing refinancing needs of European countries, and early showings are buoying the euro just a bit. China’s tightening (raising rates to slow the economy) will continue to be on traders radar screen also.
The main story for the next couple of weeks will be corporate earnings. We will watch closely to see how shares react to these announcements, perhaps discovering some opportunities to add positions.
Have a great weekend everyone. Remember, markets are closed Monday for MLK day.
