Euphoria swelled amongst investors, the media and analysts following earnings reports from Facebook Inc (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL). The markets spiked dramatically after hours yesterday and continued higher this morning. It looked to be a huge up day in the making. Could the markets make new all-time highs? Hope were high until the markets opened.
The second 9:30AM ET hit and the markets opened, they sold sharply. The gap up quickly turned into a red day on heavy volume. What on earth was going on? This was supposed to be a monster rally day. What does it mean? The fact that the markets sold so sharply on the open shows clear distribution by institutions. In other words, hedge funds and large market players sold into the buying frenzy. This is not what you want to see if the markets are going to continue higher in the near term, making all-time highs.
As the markets continued to trade into lunch, they found their footing, bouncing back to the green side. Right now the S&P 500 is hovering up 5.50 points on the day. This is on lighter volume which tells us that the institutions have stopped their selling...for the time being.
Ultimately, the fact that this market could not shoot dramatically higher today is a warning sign. In a market where the Federal Reserve is still expected to backstop any major negative events, where Apple and Facebook had great earnings, this market should have been dramatically higher with the S&P testing, if not breaking the all-time highs. The fact that it is barely up on the day is definitely a negative.
I took profits today on my QUALCOMM, Inc. (NASDAQ:QCOM) short, making 5.35%. I continue to look for good levels to accumulate shorts in the near term as I expect this market to struggle to move higher.
Gareth Soloway
InTheMoneyStocks.com
