Market Montage

The market was stretched to the downside yesterday at its lows and hit the key S&P 1538 level which provided support twice earlier in the past 2 months.  So going through to break it immediately after a 3%+ correction would have taken a serious amount of panic or fear.  Instead starting at 3 PM after a quick undercut of that level they have been bringing the market back up, despite the IBM damage on the Dow.

The more one utilizes Fibonacci lines the more one sees how prevalent they are in the markets – either these are the magical numbers that rule our universe OR they are something the algos on Wall Street are really programmed to.   Probably some combination of the two.  Whatever the case as I peruse why the S&P 500 has bounced to where it has this morning, you can guess where we have stalled.  Right at the 23.6% retrace of the drop from April 11th.  If the bulls can push through this level the next stop would be …

A lot of names report tonight – the most market moving being IBM and Google.  IBM is the largest Dow component and missed on the top line significantly.  As always it is easier to (ahem) "manage" the bottom line [earnings] versus revenue.  The stock is down significantly in after hours and if things don't change tomorrow will pressure the DJIA.   Google (GOOG) has been selling off for the past few weeks and hence had a low bar which it has passed = up a few % in after hours.  Nothing fantastic in the report, it was average and the stock was beaten down recently.  Other names of interest – Intuitive Surgical (ISRG) down significantly in after hours and Chipotle Mexican Grill (CMG) up significantly.  Microsoft (MSFT) up some as well on a ho hum report.

Mixed bag but generally the early theme in earnings season is revenue growth is getting harder to come by and even with so many companies guiding analysts down on EPS we are not seeing a lot of shoot out the lights on the bottom line either.  We'll see if they can pump some life into IBM by tomorrow premarket as it will influence things.

Of course market bulls will yell about P/E multiple expansion due to QE and that's been the winning idea for months.  It works, until it doesn't.

We are getting a lot of 3 PM rallies of late – a bit suspicious… today there was about a .45% rally between 3 and 3:45 PM.  I think one day earlier this week we had a 0.4% rally in the same time frame.  So this is not allowing for a purging type of selloff – more like a slow pull off of band aid.

1538 is very key as we saw today at 3 pm.

While there was a quick and sharp rally off this lows 1540s level this morning of some 10 S&P points, it was of the extreme dead cat variety and has now given back all of it. This week we are seeing weakness in a lot of the high beta tech members like Google (GOOG), Linked (LNKD), Netflix (NFLX) which were the leaders of the first few months of 2013.  And now today they have finally come for the last leaders outside of 'pure safety' (i.e. utilities) – the healthcare and biotech stocks.

I have been able to figure out how to put the 23.6% Fibonacci level on …

It does look like we are experiencing the first real correction of the year.  If certain patterns fulfill technically there will be more downside to come.  However short term some short term indicators are flashing oversold and the S&P 500 is coming into some support areas in the 1538 – 1540 level.  Low this AM was 1541.  If bears can somehow just bust right through that without trouble, being this near term oversold it would be quite interesting.  That said, pressing here is a lower probability outcome as you get closer to one of those relief type rallies – dead cat or otherwise.

Stockcharts.com doesn't show the 23.6% retracement but it is 1538ish for those interested.  For the other major pullback levels (and remember a 38.2% retrace is still considered "healthy") see chart below.  [If needed, click on chart twice - on this page and next, for a larger view]

After about 15 minutes of battling at this major trend line we've been citing it finally broke and the results have been predictable since.