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What's Happening With This Market?

|Includes: AXP, CME, COF, FCX, FFIV, GOOG, Goldman Sachs Group Inc. (GS), ICE, RIO, X

The market opened slightly higher this morning.  But, within the first 30 minutes from the open, the market slid into the red.  Before the end of the first hour, the market started to drop sharply!  In the Trading Room, I warned our members promptly:

January 21, 2010 7:26 AM
green, be careful...

January 21, 2010 7:26 AM
commodity sectors
sliding further...

January 21, 2010 7:32 AM
pulling back...

January 21, 2010 7:33 AM
WASHINGTON (NYSE:AP) -- President Barack Obama, eager to harness and redirect voter anger over bank bailouts, is ramping up his war on Wall Street Thursday by pushing tougher regulation of big banks.

This morning, President Obama announced his intention to propose some possible changes to limit the risks that some big banks take.  Immediately after the announcement, financial stocks started to fall fast.  GS, which recorded a record $4.79 billion fourth-quarter profit, ended down 4.12%, or $6.92, to close just above $160 per share.  CME and ICE were hit hard, with CME down more than $21 at one point, before closing at $311.02, down $18.97, or 5.75%.  The fast drop in the financials also spooked other sectors.  Miners, which were already weak, still reeling from China's recent attempt to contain inflation, sank lower.  FCX reported strong earnings, but, its stock fell 8.67% on the day.  X, after doubling in a little more than 2 months, finally pulled back below $60 per share, down 8.84%.  RTP started the day gapping down and faltered lower to a 7% drop!

With the broader market falling hard, we picked a nice upside winner.  FFIV reported solid earnings last night and gave favorable guidance, with profit rising +37%!  FFIV also received a couple of upgrades today.  We locked in our gains in this selling market environment today.  In a stronger market, FFIV would likely have jumped much higher!

January 21, 2010
12:55 | HappyTrading FFIV ($54.60) Sold to Close FLKBJ Feb 50 calls, at $5.10 +22%
08:52 | HappyTrading FFIV ($54.90) Sold to Close FLKBJ Feb 50 calls, at $5.40 +29%
08:34 | HappyTrading FFIV ($54.50) Sold to Close FLKBJ Feb 50 calls, at $5.10 +22%

These FFIV Feb 50 calls were opened on on Tuesdays:
January 19, 2010
08:14 | HappyTrading FFIV ($52.50) Bought to Open FLKBJ Feb 50 calls, at $4.19 

After the market, credit card companies AXP and COF both reported better-than-expected earnings.  But, both stocks slid in after-hours trading, down 2.35% and 3.4%, respectively.  The most anticipated earnings report tonight was probably that of GOOG.  GOOG reported a stellar quarter, but, like everything else, its stock sold off!  GOOG traded as low as $549 in after-hours before stablizing around $555.  Although the last trade was recorded at $582.58 this evening, off only $0.4 from today's close, we'll have to see if that will hold tomorrow morning.

The Dow was down 213.27 points; SPX lost 21.56 points; Nasdaq dropped 25.55 points:

XME (metals and mining) stumbled 6.14% while GDX (gold miners) fell 4.33%..  XLF (financials) slumped 2.85%.  BTK (biotech) pulled back 2.08%.  USO (oil) dropped 1.72%.  OIH (oil services) was also lower.  INX2 (internet) was flat, perhaps anticipating good numbers from GOOG. FXI (Chinese ADRs) dumped 3.72%.


SPX lost 21.56 points to close at 1116.48.  It closed below its daily MAs.  The MACD curved down.


Nasdaq fell 25.55 points to close at 2265.70.  It closed just above its 30-day MA.  Its MACD went lower.

So, what's going on with this market?  It has been trading in a tight range for 2 weeks now.  Aside from China's attempt to avoid a bubble in its economy and Presiden Obama's announcement on bank regulations today, the buyers are tired and are ready to take profits.  What the market has been seeing is that every attempt to drive the market to the next level was met with sellers standing by and ready to take profits.  Last Friday, in our Trading Room, I cautioned to our members:
January 15, 2010 9:22 AM
be careful with your long plays... this market can get a quick pullback...

Although buyers made another attempt this Tuesday to break higher, we finally got a quick pullback today.  It is apparent that market makers want to see some steam let off in the market indices.  So far in this earnings season, most bellweather companies have reported well, better-than-expected, but, their stocks have sold off.  The big names on the market are getting hit the hardest, and as a result, the Dow has fallen faster than SPX and Nasdaq.  This is also why we didn't play INTC or IBM's earnings; we picked a smaller company with good momentum, like FFIV. 

Pullbacks are healthy and they often happen fast.  SPX closed below 1120, which can cause some concern.  In my Market Forecast this weekend, I mentioned, "If SPX falls below 1120, the market could turn bearish."  We'll likely see some bounces tomorrow.  But, VIX has jumped quite a bit, closing above 22 today and could test 23 tomorrow.  We'll need another couple of days to see if this quick pullback was just a pullback.  If SPX 1100 does not hold, we could see SPX 1000 tested, which would be a 13% correction from the recent 1150.

Good night and HappyTrading! ™

Disclosure: positions: none