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I On The Market - Wednesday Update - 04/18/2012

 April 18, 2012 09:48 AM


(By Rich Bieglmeier) Now and then the market can double-cross even the most tenured market watchers. Yesterday, iStock's examination of the index charts let us believe the indexes would challenge their March 2012 lows. And Tuesday's market action made a fool of our prognostication, at least for now.

Buyers managed to rekindle the hopes of bulls with a robust move through the respective 50-day moving average for the major indexes; albeit, Tuesday's jump was accompanied by limp volume, one the meekest days of 2012.

Big up swings on tiny volume can be top heavy, investors must approach a fat head on skinny leg rallies with trepidation.  If the center of balance starts to wobble, the head can fall to the floor in a hurry.

[Related -Buffett's Market Indicator Flashes Red, Prepare To Sell]

In any case, the S&P, NASDAQ, and Dow have put a clear trend-line and potential neckline in place on their charts. While last week's exploits may have perpetrated an excellent technical head-fake, we won't be fooled again.

Going forward, as long as the indexes remain on top of the bottom edge of support, then buying the dips is probably the right way to go. At the same time, the next rally is going to be hugely important. At some point, a new run will have to surpass April's highs or risk drawing a head and shoulders pattern, just like last year. Check out this S&P chart to see what we mean.

As of Friday's close, 27 S&P 500 members have reported their earnings. Twenty-two of the companies (84.48%) have topped Wall Street's consensus estimates. That's a startling number. However, thanks to a couple of huge misses, earnings are down relative to 2011's start – running 15% lower.  

[Related -PBoC joins other major central banks with unconventional monetary policy action]

If you throw out the best and worst performer, the results are still under water compared to the same period a year ago – on pace to fall 7.9%. Toss out the two worst offenders and then profits are up 17%. While it is fun to play around with the numbers, unfortunately, quarterly check-ups are like golf, every swing counts.

So far, only 5% of the S&P 500 has reported, so the full picture is yet to be drawn. iStock will continue to run the numbers and report our findings to you every Wednesday. By the end of this week, a workable outline should emerge, and we can start to calculate where profits and market levels are likely to collide.

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