Stocks Rally as Earnings Season Begins | Week in Review 01/20/2018


Not much changed from my comments last week. Stocks went from being overbought, to being very over-bought in a matter of a few weeks. The fact that the market refuses to fall in a meaningful fashion clearly shows you how strong the bulls are right now. Stepping back, it is important to keep a cool head and remain cognizant of the fact that the market is very over-bought and due to pullback. 

Buying up here, after a big move, is not prudent and it is a matter of when, not if, the market pulls back. The first important level to watch is the 50 day moving average for the major indices. Last week I noted that the semiconductor stocks ($SMH) fell while the broader markets rallied. Someone must of have been reading because, since then, Semis rallied hard and are now back above the 50 DMA line. Stepping back, the market remains very strong as we head into earnings season. Remember, in bull markets, surprises happen to the upside, not the downside. 


Mon-Wed Action:

Stocks were closed on Monday in observance of the MLK holiday. Stocks gapped up over 200 points on Tuesday but sellers finally showed up and the Dow fell around 100 points intra-day before rallying back and closing unchanged. On a daily bar, that was a negative reversal which normally marks a near-term high.

Instead of falling, stocks rallied hard on Wednesday after Apple (AAPL) said it will repatriate billions of dollars in overseas cash and several big banks reported earnings. The Dow jumped 322 points as investors cheered a strong start to earnings season. Accordingly to data from CNBC and Reuters, most of the companies that have reported earnings so far have beat estimates.

Thur & Fri Action:

Stocks were mixed to slightly lower on Thursday as the market paused to digest its recent (and very strong) gain. Morgan Stanley (MS) reported stronger-than-expected earnings which capped off a bullish start to earnings season from the big banks. So far, most of the big banks rallied after reporting earnings which is a bullish sign. Separately, some people were concerned about a government shut down. Congress has until Friday night to avoid a shutdown. Historically, a government shutdown leads to a short-term pullback for the market. Stocks were quiet on Friday as the market waited to see what would happen in D.C. with respect to the government shutdown. The official deadline is Friday at midnight.

Stocks were quiet on Friday as the market waited to see what would happen in D.C. with respect to the government shutdown. The official deadline is Friday at midnight… and as of this writing (5:51am ET Saturday) the US government is shut down…


Market Outlook: Bulls Are Strong

The bulls are back in control and the market remains very strong. As always, keep your losses small and never argue with the tape.


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