Last week, in my evening articles, I cautioned that the market was getting toppy. In the Trading Room last Thursday, I said,
October 14, 2010 9:50 AM
could be near ready for a quick pullback… if not tomorrow, maybe next week…
Today, the rise in dollar on China’s rate hike gave investors the cue (or the proper excuse) to lock in those profits. Both AAPL and IBM delivered strong earnings, but, were seen as "not enough". AAPL was down 2.68% and IBM fell 3.36%. VMW also beat its earnings estimates, but, it was "not enough". VMW sank 6.68%. FFIV and CRM both traded down as well, -2.34% and -1.89%, respectively.
This morning, GS shares rose on its earnings beat. In the Trading Room yesterday, I commented on how strong GS’s charts looked:
October 18, 2010 12:31 PM
looks surprisingly strong…
We caught a nice quick trade on GS weekly calls this morning. We got in on the GS 155 weekly calls, and in less than 30 minutes, got out with a +53% gain!
October 19, 2010
07:49 | HappyTrading GS ($157.80) Sold to Close 1022C155 Oct 155 calls, at $3.80 +53%
07:24 | HappyTrading GS ($155.80) Bought to Open 1022C155 Oct 155 calls, at $2.48
These GS 155 weekly calls soared to a day high of $5.3, which would have give us more than a double in just a couple of hours. But, I was being extra careful as the market overall was weak. +53% gain in less than 30 minutes in still a very good trade! These calls closed at just $3.05!
Energy and mining stocks were very weak today (see this weekend’s Sector Watch). OXY delivered a solid quarter with a +28% rise on its net income. But, was it enough? No! OXY shares were down 5% today. So, why are these strong earnings numbers not enough? When it’s time to take profits, it’s time to take profits. Things can’t just keep going higher without a pullback. When the technicals are toppy, we have to be cautious. And, why did GS break out, bucking the trend? Well, GS has not really gone anywhere since the Sept rally, and, it is still down for the year! "Smart money" was certainly setting up for a breakout on GS ahead of earnings, and, we were there to catch it when it did.
After the market, CREE sank 7.66% as it missed its target on revenue. VECO got pounded as well, down 4.74% during the day and an additional 3.92% in after-hours! ISRG delivered inline results for the quarter. ISRG shares traded down 5% this evening on top of the 2.29% loss from the day session.
The Dow was down 165.07 points; SPX lost 18.81 points; Nasdaq fell 43.71 points:
XME (metals and mining) tumbled 5.91%. USO (oil) lost 4.58% while OIH (oil services) slipped 3.08%. GLD (gold) and SLV (silver) both fell sharply (see Sector Watch). XLF (financials) was down 1.39%, even though GS was up. MOO (agriculture) pulled back as well. FXI (Chinese ADRs) gave up 2.35%.
SPX lost 18.81 points to close at 1165.9. The 10-day MA flattened and the MACD went down.
Nasdaq fell 43.71 points to close at 2436.95. It clsoed above its daily MAs. The MACD slid.
Well, both Nasdaq and SPX came down to test their respective 10-day MAs. Nasdaq bounced and closed above it. SPX had a harder time with industrials so weak on the rising dollar. VIX popped up to test 21 and closed under. Things will likely be choppy this week. As some take profits, others will try to hunt for bargains. SPX tested 1160 today and held. The market could be range-bound this week, so be patient. We are holding mostly cash and waiting for the market to establish a bottom on this pullback.