(By Rich Bieglmeier)The day started off on a scary note and proceeded to get worse. At one point, all the major indexes were down more than 1.5%. However, once the European markets rang their closing bells, buyers emerged, and US equities made up a lot of lost ground.
While some might be surprised by the reversal, you shouldn't be. For at least the last week, this column has been warning readers that the NASDAQ was headed towards 2900, the S&P feeling for 1340, and the Dow could seek out 12,700.
In the words of Meatloaf, now don't be sad, because two out of three ain't bad. The NASDAQ reversed on 2900.06, the S&P u-turned 1347.45. And, we weren't all that far of on the Dow as its pivot point was 12,810.
While red days are annoying and bad for fingernail length, today's action was very positive for investors. Now, we have an absolute I dare you to cross this line for the NASDAQ. Twenty-nine hundred is the make or break spot on the index's chart. It's a two-time firewall, and as long as it holds up, it's ok to buy stocks while the index is on the plus side (reminder: we like to use the NASDAQ as our leading edge index as it tends to set the pace.)
Just as importantly, a close below 2850ish and it will be like 95 degrees in sun, time to be wearing shorts.
Starting as soon as Wednesday, iStock believes the indexes will try to make a move back to their respective 50-day averages: NASDAQ 3029, S&P 1387, and Dow 13,061. The right words from Ben Bernanke and the right numbers from Jobless Claim on Thursday could be all it takes to revisit the 50-day benchmarks.
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So far, 80% of the S&P 500 members have reported their most recent quarterly earnings results. To date, as reported earnings are up 7% and operating earnings are close to an all-time high. The number of upside surprises has slowed from more than 80% to 67%.
The materials sector has been the best performer with nearly 85% of companies exceeding Wall Street's consensus view. Meanwhile, energy stocks have had the worst of it as one out of two failed to live up to expectations.
It could be difficult of Q2 earnings to grow at the same pace as Q1 as sales for the first three months of 2012 have increased by only 4.91%. Margins will have to get fatter or registers ring more often; otherwise, iStock would expect to see eps growth in the 5% range for April through June quarter.
A slowdown in eps growth would make it difficult for index P/E expansion, which means stocks could be range bound for the next few months.
iStock of the Week Update:
What a crazy week for First Solar, Inc. (FSLR). The stock shot up 79 cents from Monday's open, making our short call look as bad as that mother who is addicted to tanning beds. Have you seen that picture? What the hell is she thinking? Sorry – we digress.
On Tuesday, the stock swung violently back into the red, dropping $1.13 (6.4%). The turn of the tape has our short profitable by 44 cents or 2.6%. Honestly, it's not the way we envisioned it. The ride sort of feels like the old-school, wooden American Eagle roller coaster at Six Flags Great America.
The ride slams you from side to side in your seat, strains all your body parts while it is rolling, and you're not sure if the ride is fun until it is over. It's either exhilarating or nauseating depending on when and what you eat before you buckle up.
Anyway, the stock closed at an all-time new low. And… new lows are usually followed by newer, lower lows. Our technical perspective remains the same. Typically, stocks that close on or near a high one day, and then on or near the low the following day, as FSLR did, resume prevailing trend lower.
We would suggest limiting risk by selling the stock if it closes or looks as if it will close above yesterday's high of $17.67.