Earnings Excitement Faded, Trends Breaking, and Still Not Oversold

Earnings excitement is one casualty of the current selling in the market. Several big cap stocks and multinational companies generated a lot of hype and attention from their earnings results this quarter. A number of those gains have been erased and then some. Four stocks have attracted my particular interest:

  1. Apple (APPL) – A market darling that is a must own amongst institutional buyers.
  2. Caterpillar (CAT) – I always watch it as an indicator of strength in cyclicals and the “China story.”
  3. Intel (INTC) – Despite my expectations for peak margins, INTC has been able to manage earnings expectations and produce welcome results.
  4. JPMorgan (JPM) – This bank is today’s best indicator of health in the financials (as opposed to just an indicator of willingness to speculate in financials).

I have posted charts of these stocks from yesterday below. The current tops in these four stocks are dramatic, but only CAT looks like a convincing climactic top given the fade from the top on the day earnings were reported and the strong follow-through the next day (CAT printed a climactic top pattern in January as well but it was nullified in April). Note that AAPL continued higher for a few days after its earnings, INTC churned before turning lower, and JPM sold off dramatically upon announcement of fraud charges against Goldman Sachs (GS). (Honorable mention goes to First Solar [FSLR] which today erased all of its post-earnings gains – click here for my review of their earnings. I started scaling back into the stock today as it retested its 200DMA)


Even Apple could not escape recent selling pressure
Even Apple could not escape recent selling pressure


Can CAT overcome its second climactic top of the year?
Can CAT overcome its second climactic top of the year?


Is Intel's magic finally fading?
Is Intel's magic finally fading?


JPM back to struggling with its 200DMA
JPM back to struggling with its 200DMA


While earnings excitement fades, trends are also breaking. The percentage of stocks trading above their 200-day moving averages (DMAs) (T2107) has tumbled for the first time since the January-February correction. It was at 76% yesterday and at the time of writing it has dropped below 73% (see chart below). If it breaks the closing low of 69% from February, watch for selling pressure in the market to increase.


T2107 is reaching a critical level of support
T2107 is reaching a critical level of support


Finally, the percentage of stocks trading above their 40DMAs (T2108) has dropped fast. Yesterday, it closed at 38%. At the time of writing, it is now at 32%. The market is not considered short-term oversold until this indicator hits 20% or lower. At current rates of descent, T2107 will test its support just as T2108 finally hits the oversold level. If this happens, I will be looking for a further spike in the VIX (volatility index) as a powerful buying signal. However, a lower low for T2108 will send up a big red flag for the sustainability of the overall rally in the market. (Click here for my last review of the relationship between the VIX and T2108).


Market getting oversold but will T2108 make a new, lower low?
Market getting oversold but will T2108 make a new, lower low?

*All charts created using TeleChart:

Be careful out there!

Full disclosure: long GS shares, long GS put spread, long FSLR

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