Sellers have bulls in a corner. Poor earnings from the likes of International Business Machines (IBM) and Google (GOOG) put the stock market in reverse to end last week. As a result, the NASDAQ continued making lower lows, walking downstairs is a hallmark of a downtrend.
However, while bears have the NASDAQ pinned down, the Dow and S&P have some space to escape. Both indexes haven’t violated their 50-day average or the lower support line that connects rising pivot lows. ETF Stocks is big on confirmation. It is ok for one index to act up, like the NASDAQ is currently behaving. So long as at least one of the three major indexes remains on trend.
This week will be the heaviest week of the third-quarter earnings season, so far. Hundreds of companies a day will return home to investors and Wall Street with their profit report cards. To date, financials have done fairly well and as we’ve already mentioned, technology stocks are coming up short.
Earnings are to stock price like Marry is to little lambs, wherever earnings go, stock prices are sure to follow. Some big names this week that will report profits include Caterpillar Inc. (CAT), Yahoo! Inc. (YHOO), 3M Co. (MMM), E. I. du Pont de Nemours and Co. (DD), AT&T Inc. (T), Boeing Co. (BA), Amazon.Com Inc. (AMZN), and probably none bigger than Apple Inc. (AAPL) on Thursday.
If the smartphone and tablet maker misses as it did last time out, it would be next to impossible for the NASDAQ to hold up. It will also be the second-time Wall Street gets an update on iPhone 5 sales. ETF Stocks believes the street could be disappointed. In the first weekend of availability, fewer phones than expected were sold, and then last week, Verizon (VZ) announced that it sold a few thousand more than 600,000 iPhone 5s, another underwhelming result.
In addition to big earnings announcement, a couple of major economic reports are on tap for the week ahead. Durable Goods Orders will be released before the market opens on Thursday, and Gross Domestic Product (GDP) on Friday before the bell.
October car sales and ISM Manufacturing report suggest that Durable Goods will be stronger than last month’s debacle; however, going from -13.2% to a gain of 7%, from month-to-month, might be asking too much.
As for GDP, economists predict that the economy grew by 1.9% in the third quarter. Two of the three ISM reports came in slightly below 50, and the third at 51.5. The combination suggests that the economy grew at a slow pace during the summer. Since Friday’s announcement is a rough draft, as data is not complete, the first GDP announcement tends to close to the mark. We think Friday’s results will be close to the target.
Obviously, there is a lot going on this week that can have an impact on your portfolio. In our view, the key is the Dow and S&P 500. If the pair can stay close to their respective 50-day averages of 13,353 and 1,433, then bulls have a chance to room to maneuver out of harm’s way. If not, a full-blown correction could be underway. The only questions then would be how deep and for how long?