Exposing Ideas to the Envelope of Serendipity

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Monday, October 19, 2009

Earnings Season Heats Up

While there were several high profile company earnings out last week, this is the week that things could start to get really interesting, with 27% of the S&P 500 reporting. Apple releases results after hours today and could arguably set the tone for the week, but a slew of heavy hitters such as AMZN, BLK, CAT, MO, BA, YHOO, ISRG, AMGN, EBAY, BRCM follow not far behind and should keep things active and interesting.

So far, earnings have been coming in somewhat ahead of estimates, and the market's pullbacks have been shallow and brief. At the same time, there is no denying that market internals have been deteriorating, or that the market has gotten ahead of the economy. Be that as it may, after running through nearly 1500 charts over the weekend, there is still no scarcity of bullish swing setups, and I found very few charts with truly compelling short setups. I would love to report otherwise, as a deeper correction would be most constructive, and would likely be welcomed by bulls and bears alike. It will come, eventually-- but until we see something more convincing than what we've seen thus far, the trend is still up, and dips are still being bought. That said, and I try to emphasize this daily in the comments section, this is no time for bullish complacency, and stops and stringent risk management are imperative. There have been some nice short scalping and day trade opportunities lately, but they remain counter-trend for now.

Recent breakouts in the oil and precious metals sectors are of particular interest and both appear to be in the early stages of a new move higher. I would be on the lookout for a near-term pullback to test the breakout areas as new support before too much additional upside gets underway, perhaps coinciding with an oversold technical bounce in a still very bearish looking $USD. Let's take a look at the recent breakout move in crude oil, and then a stock that is back on my radar as a longer-term swing play.

MGM has a very bullish chart setup and may have completed a consolidative pullback over the past couple of weeks. It could pull back a little more without jeopardizing the chart, and I'd keep stops tight until it's moving up well above initial resistance around $12.75, and then with an eye to resistance at the September high. The company reports earnings on 10/29 before the open.

SOHU is another stock with an interesting chart set up to monitor. Be forewarned that while I see nice potential to the upside near-term, this one tends to be very volatile to trade.

Remember to check reporting dates for companies whose stocks you are holding or considering for a trade. Holding a stock through earnings can be extremely risky and the decision to do so should be carefully weighed-- particularly in a market that has come too far too fast. Trade well.   --Brinkley
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