January 14, 2008

The market was determined to get us off on the right foot to start the week. It did so in the form of IBM giving a preannouncement to their earnings. While their earnings were so-so domestically, it was able to beat earnings estimates due to international demand for their products. Without a doubt, most of the upside seen in the market wasn’t just because investors were excited about IBM’s earnings solely, rather it was a sign that perhaps earnings might be better than expected in general, especially so in the tech, where it was beginning to feel like the credit crisis was trickling into that sector also. We should caution our readers to be very careful in subscribing to this school of thought.

While the market rallied strongly, the volume was anemic. We are very suspicious of this kind of rally as conviction on behalf of the bulls seemed minimal. While we believe that stocks could rally into tomorrow’s open and even close in the green possibly, it won’t be long before the bears cue in on the weak rallies that bulls are staging and start loading and in many cases reloading their short positions. So don’t be surprised if things turn sour again for the bulls. If you are heavily long in this environment, or trying to scoop up perceived “bargain-priced” stocks, we urge that you use tight stop-losses.

Let’s review the charts…

NASDAQ had a great day. However the major drawback to this rally is the volume that was seen across the board. It is almost as if the bears are luring the bulls into feeling a false sense of security by allowing the market to rally before gearing up for another sell-off.

The S&P’s action wasn’t convincing either. In fact the volume in the S&P was even worse than the NASDAQ. In order for this market to turn around we are going to need to see some better action than this on the part of the bulls.

Stay calm in this market and don’t commit too much cash too quickly.