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Stock Market Opening Report - May 16 2012

 May 16, 2012 09:31 AM

(By Rich Bieglmeier) This market is about as trustworthy as the stereotypical, Hollywood parody of a used car salesman. Early market action suckers you in by hinting at a bottom with a nice pop. Only, it's just the bears lifting your chin to land a harder punch more squarely to the mouth.

In the last 10 days, every and any attempt at a reversal has been overcome with a waterfall of selling, drowning buyers in the churn. Hopefully, you've been paying attention to this newsletter as iStock has been warning of the potential pitfalls of the current correction. While the indexes did head fake us into believing a run to the respective 50-day averages was possible, we reversed course immediately based on market action.

Tuesday's close put the NASDAQ, Dow, and S&P in the churn below multiple support levels. The only hope is that the indexes are in shallow water and can still walk away from a serious breakdown. However, there ain't much rope left.

[Related -Bearish Bets On Safeway Pay Off As Stock Tumbles After Earnings]

If we get another down day, this time with hot volume, you can put it on the board, yes… we are going lower, maybe much lower. There could be a few temporary pit-stops along the way, but destiny sure looks like the 200-day moving averages of 2740 for the NASDAQ, 12,191 for the Dow, and 1278 for the S&P.

There are still a few minutes left in the round, but time is running out and bulls are behind on all the judges' cards. Make sure you tuck that chin and roll with the punches. For now, we will continue to play defense and  take our shots when the right openings present themselves.

[Related -Analysts' Upgrades And Downgrades: BAC, CREE, CSTR, FITB, HAL, RVBD, VFC, XLNX]

Nasdaq technical analysis chart - May 16, 2012

(click to enlarge)

More than 90% of the S&P 500 companies have reported their earnings and the beat rate continues to slow. Sixty-six percent of the companies topped Wall Street's consensus, which is still good, but only on the high end of the normal range.

Overall, earnings have grown by 8% year-over-year, and the sales pace has picked up from last week, expanding by 6.56%. In another good sign, margins are running at touch more than 9% versus the average of 7.19%.

If second quarter earnings and sales can match the first's quarter's growth rate, stocks will be in for a big rebound if/when the EU, Eeyore debt cloud passes.

iStock of the Week Update:

We entered our Coinstar, Inc. (CSTR) short at the market open of $59.46. iStock suggests a stop loss if CSTR closes or looks like it will above $60. If the market continues to slide, $56 offers some support. After that, it's time to close the February gap up and touch $53.

Conistar chart

(click to enlarge)

Housing starts and the FOMC minutes could give the market a spark tomorrow. Wall Street is expecting 0.690 million units for the month. We have some concerns as the winter's mild weather may have pulled some construction forward.

Permits are forecast to produce a result of 0.725 million units. If starts are down due to advanced starts, it could drag permits down too. Although, there are signs that some of the most depressed markets could be flattening. That could give builders hope, and housing stocks are acting like the street expects good numbers. So, iStock believes we'll get a report that is generally in line with expectations.

As for the FOMC minutes, Ben's already testified, and market watchers have already started the countdown to QE3. No matter what,  stocks always react with volatility around Fed news. Don't be surprised to see a knee-jerk reaction one way, and then followed up with the reverse move.



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