Market Overview

Can the Nascent Rally be Trusted?

The second day of a rally attempt for the Nasdaq Composite and S&P 500 Tuesday had its share of positive qualities. For starters, volume on the New York Stock Exchange and Nasdaq came in higher than Monday, giving the rally some credibility. The “risk-on” trade was clearly in effect as several growth names bounced back after recent weakness.

Don't be too quick to say the selling is over, because it's still very early in the rally attempt. Another sign of strength (later this week or beyond) would be a sign that the market trend might be ready to turn upward again. From here, it would be good to see indices follow-through with conviction with a percentage gain of least 1.5 percent in higher volume. Follow-through days like this are best seen on the fourth day or later of a rally attempt.

The Nasdaq recently undercut its 50-day moving average, but it reclaimed the line Tuesday. It doesn't mean its trend has changed, but it was a positive technical development. The Dow and S&P 500, meanwhile, bounced off their 50-day lines this week: a positive sign so far for the bulls.

Apple (Nasdaq: AAPL) bulls surely were encouraged by its price action Tuesday as shares rallied 2.4 percent to $649.79 in higher volume. The stock isn't out of the woods yet, though. When a growth stock falls below its 50-day moving average, a former support level like this can often turn into resistance. Apple's 50-day line is currently at $661. Tuesday, Apple scheduled a press event for Oct. 23 where the company is widely expected to unveil a smaller version of the iPad tablet. Earnings are due two days later on Oct. 25. Quarterly profit is seen rising 26 percent from a year ago to $8.89 a share with sales up 29 percent to $36.3 billion. Apple has missed the consensus earnings estimate in two of the past four reported quarters.

While recent price action in tech leaders like Apple and Amazon.com (Nasdaq: AMZN) has been a bit unsettling (Amazon is also trading underneath its 50-day line) plenty of other growth names with leadership potential continue to hold up just fine. It's a positive sign because if the market were really in trouble here, there would be many more damaged stock charts out there.

Salesforce.com (NYSE: CRM), for example, is working on a handle area in a bullish cup-with-handle base. Shares closed Tuesday at $155.46, just underneath a swing point (buying area) of $161.90. With the market still in a downtrend, it remains to be seen if a technical breakout is in store for CRM, but if indices follow through with conviction in coming days, buyers could come into CRM quickly.

Meanwhile, several other growth names (including many in the Ultimate Growth Stocks model portfolio) continue to show solid supporting action with limited sell signals. Michael Kors (Nasdaq: KORS) is a good example. Its weekly chart shows the stock firming up nicely at its 10-week moving average, flirting with a technical breakout.

Unfortunately, earnings from Intel (Nasdaq: INTC) and IBM (NYSE: IBM) late Tuesday didn't do anything to instill confidence that concerns about third-quarter tech earnings are overblown. Both stocks traded lower in pre-market trading Wednesday with IBM taking the hardest hit.

Big Blue matched the consensus estimate with profit of $3.62 a share, up 10 percent from a year ago. But sales growth disappointed, falling five percent from a year ago to $24.7 billion, $1 billion below the consensus estimate. In early pre-market trading Wednesday, shares slumped 3.9 percent to $202.75. Its 50-day simple moving average -- a key support level -- is at $203.

It's really all about earnings this point. There will be good news and bad news in coming days but as long as the S&P 500's recent low of 1,425 holds, the rally will remain intact. The Nasdaq needs to hold above its recent low of 3,037. The bottom line is that there are too many healthy stocks charts out there in the universe of growth stocks followed to get too down on this market. The bull case still holds water.

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Posted-In: Earnings Long Ideas News Movers Tech Trading Ideas Best of Benzinga

 

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