The markets apparent reaction to earnings from Apple, IBM. VMW and a few others was swift and strong. The market opened up down about a percent. It was the markets biggest daily drop since early August. Reading the highlights on AAPL and IBM earnings announcements one would think that these stocks would just continue going up. And therein lies another good lesson (there will be others for those that miss it), on taking the news in any logical manner and applying it to the stock market in a predictive manner.
For anyone who read the announcement on AAPL for example, learned they beat last year by a huge amount, beat the estimates handily , and topped revenue consensus as well. So … that is a rousing buy right? Those predicting this to be the case ahead of the earnings announcement and moving into the the stock accordingly were sorely mistaken. When AAPL opened up after earnings were released this morning the stock was down $14.54. Such an expectation does not take into consideration that the stock has moved up over 10% recently into earnings and is more akin to gambling than trading or investing.
On the other hand if someone was watching AAPL after earnings and noticed the large drop and then switched to a smaller time frame like the 2,,5 or 15 minute chart and waited for a trend to form, they could buy into the big reaction AAPL was making. The general market was moving up and so was AAPL. Such a plan had far less risk and far more to potential gain. How did it work out? AAPL produced a move from $303.50 to $307.90 starting at 9:34 ET after the stock had been open 2 minutes and overcame resistance. To quick? Then the move from $305.55 to $312.21 could have been taken at 9:46 on the first pullback. It matters greatly when you have a plan and are patient and know in advance what you are looking for and what you are going to do ahead of time.
That all said, the market rallied back valiently. The earnings form those companies the gurus are pinning the drop on were really not that bad. It is probably more correct to view the drop as a correction after a long run up even as big as it was. Had earnings been bad it would have likley been a different story. But then that would have been reacted to. How the market continues to rally back … or not, will give us the clues to judge where things may be going.
The US dollar headed north in a big way even as China raised interest rates. The dollars strength or weakness and the markets strenght or weakness contin ues in an inverse relationship.
If the market can get past this pullback it is very likey an assult will be made on the post crash highs. The again this is a resistance level and it has to be measured in some manner to be able to tell that likelihood.
Trade with a plan.