Will the S&P Trend Up Continue?

Another surprisingly good week for the markets as investors perpetuate the rally that we've been riding for the last month. Part of the reason? It's earnings season! Let's take a look at the chart:

The S&P 500 has been behaving well - relatively. Since its latest bottom on March 9, it's done a good job of pushing upward 26.6%. Since last week's recap the S&P is up a noticeable 4.9%. But the question now is whether the trend will continue...

If you take a look at the chart above, the S&P is rising, but it's curving - meaning that the rate at which it's moving it's beginning to taper off. That's somewhat disconcerting for investors who are going long now. What's important to note is the fact that the tapering we've seen over the last week could just be the market consolidating - only one day closed lower than the previous this week, and volume stayed consistent: that's a good sign.

Another good sign is the bounce the market made around the end of March. The S&P hit its 50-day moving average (the graph of its average price over the trailing 50 days), and bounced off - that's a bullish signal that indicates investors aren't willing to part with stocks below that level. For now.

It's Earnings Season

Part of the reason that the market has been up so notably this week is because it's earnings season. As companies start to let investors know how the first quarter of 2009 treated their corporate coffers we're going to be able to get an idea of just how much longer we'll be talking recession. So far, it's been a mixed bag.

Early in the week lower retail sales pushed the market down despite companies like Johnson & Johnson (JNJ) and Goldman Sachs (GS) reporting better than expected earnings on Tuesday. And Thursday, beleaguered bank JP Morgan (JPM) delivered record-breaking revenues. Not everyone beat analyst expectations, though - big names like Intel (INTC) and Southwest Airlines (LUV) missed their numbers, and their stocks tumbled as a result.

Watch the Rhino Stocks

The Rhino Stock Report's portfolio is doing very well right now. This week, our stop loss on j2 Global Communications (JCOM) triggered, selling the position off at a 40% gain.

At present three of our remaining open positions – EMCORE (EME), Iconix Brand Group (CON), and Computer Sciences Corp (CSC) are up double digits as of this writing.

Disclosure: EME, ICON, and CSC are long positions in the Rhino Stock Report's portfolio.

Comments

[Dave Wrixon:]

In a word.

No.

Apr 19 07:54 AM

[William Cowie:]

The wild card is the torrent of taxpayer dollars that the government is shoveling directly to banks through PPIP in the form of artificial earnings. (We've all seen the glee with which C and WFC have trumpeted their newfound profitability.) The higher bank earnings drives up their stock prices. This drives up the Dow (several banks are Dow components) as well as the entire Financial sector. Both of these increases signal automated trading programs to start buying, which drives the market up further.

Were it not for PPIP force-feeding the market, we might very well have seen the correction we've all been waiting for. Unfortunately, we've never seen direct government intervention into the stock market like this before. Therefore, we're unable to predict whether this rally will be over anytime soon.

Under usual circumstances it's impossible to predict the market. With this wild card factor, it's even more difficult.

Apr 19 11:35 AM

[RiskReturnO...:]

In no technician, but the curve of the trend looks very similar to the one from Nov 20, 2008 to Jan 6, 2009. I think some sort of correction back down to low 800's would be most healthy.

Apr 19 11:39 AM

[Crude Oil T...:]

We test 797 retracement at a minimum. I agree with William, if the government would have stayed out of this we would be on our way to recovery. So a couple of banking buddies would have been put out of business, boo hoo!

Google Depression of 1921, Hardy was a hero!

Apr 19 11:45 AM

[Crude Oil T...:]

I meant Harding of course.

Apr 19 11:46 AM

[TheFounder:]

Watch carefully what happens when S&P gets closer to its 200 day MA (appx 970). Very strong resistance expected there, that is, if we even get close....

It takes power and momentum to cross the 200 mark upwards. We shall lose the momentum on the way there.

Apr 19 12:09 PM

[jeandit75:]

This is just my personal view but its not a question of crossing the 200 day MA or whatever. This market is sick. The economy will not be improving before long. Banks will see an increase in bad loans and will go through a very rough time from this summer and on. Wake up everybody. This is market is headed nowhere but down and pretty much soon. The earnings season is starting and will be a significant contibutor to the next wave of selling.

Apr 19 12:19 PM

[InvestBaboo:]

Very good analysis. However I disagree that INTC missed estimates. They beat estimates by a wide margin but their future outlook was murky which is what led to the sell-off on the stock. However, if you watch INTC chart patterns you can see that the sell-off was relatively mild and the stock should resume its upward climb.

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Apr 19 12:53 PM

[H. T. Love:]

The market action to-date is based on exactly what brought it down in the first place: excessive belief that credit (which the government is shoveling from one pocket to another right now) will fix everything.

How sad.

Look what happened with GE. Beat expectations (proactive management steps, belated or not) by reducing costs and getting a nice one-time tax benifit. Sees $500MM in industrial order cancellations, projects a rough year ahead, yada, yada, yada.

Stock price bounces up (closed $12.39). Did investors suddenly forget exposure to eastern European real estate? Are flagging sales of new aircraft going to increase GE jet engines orders? With aircraft lease prices under pressure, does anyone see a near-term catalyst that relieves the pressure? Is the failure to be able to unload the C&I division and subsequent decision to keep it because of exposure to Obama's green initiatives seen as a positive? Where is the near-term (2-3 year) growth that justifies PE in the 12-13 multiple range?

NBC revenues falling, loan losses increasing, 1st quarter infrastructure orders down 10%, etc. Effectively, 2 divisions support the whole conglomerate at the moment. With little-to-negative growth near-term, I can't see GE as much more than an $8-$10 (tops) stock for now.

My point is that GE serves as an example that for whatever reason, the market has decided to ignore the real economy for now and embark on an "irrational exuberance" binge. Even allowing that it may lead the economy by 6-9 months, it's way ahead of itself and the economy.

That also explains the drop in gold and gold miners stocks.

However, dreams (nightmares) end when folks awaken in a cold sweat and reality will take hold again. It's just a shame that so many retail investors will be sucked dry again because of all this.

My Humble Opinion
HardToLove

Apr 19 03:09 PM

[J. D. Swampfox:]

Seeking Alpha is a great place to judge sentiment. For example, one can look at the votes supporting, or not supporting the various comments made on this particular article and see who is bullish and who is bearish. Of course some voters are voting out of other motivations, but those tend to cancel out over the long run...

Apr 19 08:22 PM

[Friar Hilarius:]

What statistical data, sustained over the last 3 months, supports the concept of ongoing recovery ?

If anyone can quote anything positive I will change my habit of believing that the worst is still to come

We need a savings based economy

Friar Hilarius

Apr 19 10:55 PM

[Valley Boy:]

Yes, Harding was the instigator of the Roaring Twenties.
It is high time today's economists and academics study and
publicize how he got us out of depression without resorting to war
and bankrupting the federal government.


On Apr 19 11:46 AM Crude Oil Trader wrote:

> I meant Harding of course.

Apr 20 01:58 AM

[Allan Frain:]

It can be seen that Value Investing is on vacation. For all the passion on both sides of whether this rally will continue or reverse--trading cannot be confused with investing.

Volatility should not be confused with momentum. Retracement percentages should be considered only alongside retracement timeframes.

Apr 20 07:49 AM

[twitee:]

Idiots like Cetin Hakimoglu are thinking the market is recovering...go figure!

Apr 20 05:33 PM