Chaikin Market Insights - April 20th, 2014
Market Rallies Back to Resistance…Earnings Beat Estimates, Revenue Falls Short
The S&P 500 Index closed at 1,864.85, up 2.7% on the week. The stock market tested the previous week's lows on Monday and then rallied sharply to regain its 50 day average and close the shortened trading week on a strong note. It should be pointed out the Thursday before Easter is one of the strongest days of the year.
We are now in the thick of earnings season, a time when the stock market over the past four years has made a new high. IBM's negative reaction to a somber earnings report where EPS growth was fueled by stock buy backs not revenue gains is a decided negative for the market's direction over the next 5 weeks.
The S&P 500 Index needs to close above 1,872.50 - 1,880 to avoid a slide back down towards 1,800. Its close of 1,865 was a 62% retracement of the April decline and the Fibonacci devotees amongst you will recognize the resistance that usually implies.
Economic indicators have been good and earnings have been benign but I recommend caution at this juncture. I believe that raising cash on rallies is the prudent course as a 5 - 10% correction seems likely and the seasonality is not favorable for the market as we exit April.
Bearish Power Gauge stocks should certainly be sold and we highlight some of the more vulnerable below. Taking profits on stocks with bullish Power Gauge ratings is also recommended as cash will prove to be a valuable commodity if the broad market follows the high flying momentum stocks down.
Eight Stocks to Avoid - Follow Up
Last week we highlighted the following 8 stocks to be avoided based on a bearish Power Gauge rating and poor technical performance:
These stocks had relief rallies in a strong week for the market. Rackspace (RAX) and LinkedIn (LNKD) reached a short-term overbought condition while Amazon (AMZN), which is due to report this week, is not quite there yet.
These stocks should be out of your portfolio along with our bearish stock of the week below (subscribe to Chaikin Market Insights to see Marc's Weekly Stock Picks).
Weekly Sector and Select SPDR ETF Update
To read more of Marc's Weekly Insights, visit https://www.chaikinpowertools.com/market-insights.shtml.