Market Firms Ahead of Next Week's Early Earnings

The major indices put in a sharp, short-covering rally on Wednesday. Today we are trading around a significant "ice layer," or resistance on the Standard & Poor's 500-stock index and NASDAQ. It could be that this initial rally will continue to ratchet the market into the 1100 to 1120 range on the S&P 500. This is a key resistance area to watch.

So far, market internals are not strong enough on breadth or up and down volume to have more conviction. We are evaluating the basing characteristics and running a number of fundamental screens to find strength and stocks with leadership qualities that could begin to break out. Very few stocks are showing true leadership and more consolidation of the recent sell-off may be necessary.

The effort vs. result of the stock market bounce Wednesday appears to be gaining steam. If the bulls remain in control, little should be given up over the next several days.

Next week will begin some early earnings announcements and a clearer picture will emerge for decisions on increasing short exposure or long exposure. The “personality” of the rally does not have the strength we saw in the summer of 2009. The technical damage to the market may require some more time to mend and that would be normal and expected during this phase of a market cycle.

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