Time For A Pullback

Earnings season is just ramping up. Alcoa announced after the close last night and appears to have slightly surpassed expectations. Articles on
Marketwatch.com and other sites in the past few days are suggesting earnings overall will disappoint.

The S&P 500 jumped up 4.7% in just four days and has shown no strength since then. This may be hesitation about making further commitments with earnings season starting. Another factor may be the chart pattern of the S&P. It has reached prior highs set last fall, that were retested a couple of times without a successful breakout. The S&P has returned to that resistance level and so far is backing off:

SP5001.9.2013.png

Seasonally, the S&P’s track record is about a wash. For example, over the next 7 weeks, the S&P has gained an average of 1.4%, with gains in 16 out of 31
years, for a 52% success rate. In other words, sideways.

With the market sitting right up at a well-defined resistance level, and an uncertain earnings seasonal starting, it certainly wouldn’t be a high
probability trade to bet on further upside right now.

Is it worth betting on the downside? It can be risky. While there isn’t a strong seasonal bias right now, looking at the bigger picture, such as a weekly
chart of the S&P, the market is still in an uptrend from the 2009 low. Any pullbacks may be short-lived, and bearish trades can quickly give back their
gains.

The best play right now may be to wait for some major companies to announce and see how the market responds. If earnings seem to be holding up and the market responds positively, many good upside trades will be possible. I expect Amazon and Apple to have good earnings reports. But I will also be looking at many basic industry stocks, like CAT.

For the most part, the seasonal patterns of most sector ETFs are like the S&P’s – sideways for several weeks. While the number of stocks with strong seasonal track records right now is significantly lower right now, most likely due to the caution expressed every year leading into Q4 earnings, there are always some interesting trade candidates. For example, BDX, which I mentioned here a few days ago, is still moving upwards on above-average volume. It has a strong upwardly-biased seasonal for the next several weeks, and its earnings aren’t due for another month (Feb 5th).

OIH, the Oil Service stocks ETF, has pulled back slightly on low volume. OIH’s seasonal chart shows a good upward bias over the next 4 to 6 weeks. But there are a couple of sectors that have a downward bias this time of year.

XLF, the SPDRs Select Sector Financial ETF, has decreased an average 3.3% over the next 2 weeks, and 4.7% over the next 7 weeks, with losses in 10 out of 14 years:

ST1.9.2013.png

Tech is the other sector standing out with a negative bias. XLK, the SPDRs Select Sector Technology ETF, has decreased an average 4.6% over the next 8
weeks, with losses in 12 out of 14 years:

ST1.9.2013.2.png

Many stocks I’ve highlighted in recent Seasonal Forecaster newsletters are holding up well, but it may be time to take profits. The odds favor an
overall market pullback right now. As the stocks with good seasonal track records put their earnings announcements behind them, many good high
probability setups should appear.

In the meantime, the VIX has fallen to an incredible 13.62. I’m going to spend my time investigating possible straddle trades on major stocks reporting in early February. Our last two straddle trades each hit 20+% profits within a week. Stay tuned.

Of course, there’s much more you need to know and many more stocks you can capitalize upon each and every day.  To find out more, type in www.markettamer.com/seasonal-forecaster

By Gregg Harris, MarketTamer Chief Technical Strategist

Copyright (C) 2013 Stock & Options Training LLC

Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.

Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.

Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg’s passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.

As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.

Be Sociable, Share!

Related Posts

 

MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.


This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.


The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The www.MarketTamer.com educational training program and software services are provided to improve financial understanding.


The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.