Saturday, October 19, 2013

S+P 500 closes at all time high as default avoided, earnings take center stage (Google, JP Morgan, IBM, American Express )...

As the eleventh hour short term resolution became a reality this week, stocks continued their upwards momentum closing at another new all time high in the S+P 500. In the short term I can see some minor resistance above around the 1750 level on the S+P 500 as depicted in the above chart. The area is defined by the length the market proceeded above it's previous highs (roughly 20 pts) along with matching the size of the previous rally off the 1626 low into the "no taper" Fed announcement top.

Now since the last major swing low at 1646, the biggest drop has been about 15.5 pts. So it is entirely possible for a pause in the market to retrace back somewhere in the vicinity of that amount, or even twice that amount (30pts), since we have seen a 100 handle move in the S+P 500 in a short amount of time.

Look for support to now stand at those previous swing high pivots, 1729 and 1709 respectively. This market is likely headed to 1775 and probably higher over the coming months, as upside targets on both the Dow and the S+P are defined in this prior post.

As earnings come back into focus, let's take a quick look at the technical structure and price trends of a few of the companies that have already reported earnings.
JP Morgan Chase (JPM) reported it's earnings last week and also this week there were reports of a settlement reached with the FHFA. In terms of technical price action I see a stock that is likely headed back up to $56. This is defined by the length of the previous two trading ranges. The fact that the stock was able to hold above the high of it's previous trading range on 3-4 separate occasions was a bullish signal. I would be targeting the $61 level going forward.
Below $50 would likely push the share price back down to the $46 level and probably even the $43.50-$44.50 area before finding stronger long term support.
Next we have IBM. IBM reported it's earnings this week, posting a miss on revenue and a beat on EPS. Sellers became more aggressive and took the share price down to another new low for year to date.
In order to analyze the technical structure I have taken a step back and observed the bigger picture in the chart above. This chart above is showing the entire bull market run from 2008 lows. One thing we can immediately see is that this current correction we find ourselves in is already bigger than any of the previous corrections of the past 5 years. Until then we have had 3 corrections of roughly the same size (13.59% - 15.35% and 28 points in length). Even before this weeks earnings announcement we had already broken this "rhythm", which at the very least would be a yellow light.
So it may be that this trend is broken, one major area I would be watching is the $160 level. This is defined by a previous pivot low in the vicinity, it would also be 2x the size of the biggest correction in terms of points, and most importantly the 38.2% retracement level of this entire bull market run. I think there is a high probability that support will be found in that vicinity, at least in the short term.
Otherwise this is a technical trend that has been broken and would likely make a run for the $135 level and possibly lower.
Google (GOOG) also reported it's earnings this week. And according to the demand that followed, there wasn't much that buyers did not like.

I have done a few posts on this price chart over the years, over a year ago I posted a chart highlighting the $900 price level as being the area that would match the size of the previous bull market in this stock, following it's IPO. The stock price hovered around that price target for about 6 months before breakout out above $1000 on Friday, one of the biggest one day gains in terms of dollar amount, that I can remember.

Unless this stock takes out it's rising trend line below and shows weakness below it's 2007 bull market high at $747, I can see no reason to be long term bearish on this name. It's a tough one to chase at this point and I would advise against it. But it certainly appears as if this momentum will continue.

Lastly we have American Express (AXP), they also reported earnings this week and basically knocked the cover off the ball. This stock has had a great run year to date and is poised to continue that upward momentum into year's end.

The stock price spent the better part of the summer range bound, roughly between $72 and $78 (6 points). This momentum and energy will likely take the share price to at least $84 in the near term.

Another important piece of information is the fact that as of Friday's close, the cumulative advance - decline has finally broken out to the upside of it's 6 month trading range. This bodes well for higher prices in the future.