Earnings season has begun and most bulls would like to start it all over again. Alcoa (AA) did manage to start things off Monday after the bell with a slight beat, but after a very modest opening gap up theTuesday morning, sellers emerged. Take a look at AA's action last week:
That ugly red candle (circled in red) is the action the day after earnings were released. AA gapped up slightly, then was under selling pressure throughout the remainder of the day. Technically, it's important to note that AA did manage to hold onto price support near the $8.27 level. That was small consolation, however, when you consider that AA opened at $8.82 after earnings.
That's how a decent earnings report was treated. Don't even think about warning in this market. If you need an example of how brutal the results of a warning can be, take a look at Advanced Micro Devices (AMD):
Applied Materials (AMAT) also warned in the semiconductor space and finished down close to 5% last week. In addition, both Intel (INTC) and Texas Instruments (TXN) made significant technical breakdowns on Thursday, but were able to rally on Friday to at least temporarily hold onto price support. INTC reports this week (Tuesday after the bell) and their earnings will have a HUGE impact on the semiconductor space. Semiconductors need to see buyers soon as they performed miserably last week. Check out the precarious technical position of the SOX currently:
Watch the reaction to the INTC report closely, because the SOX has given up all of the June gains with its latest downtrend. Given the warnings in the space, traders will be paying particular attention to INTC's earnings results and their forward guidance.
The stock market rallied sharply on Friday to avoid what could have been a significant deterioration in the technical picture. The S&P 500 was up 1.7% on Friday alone, but finished the week with a very small fractional gain. Still, the S&P 500 did lead all of our major indices, gaining 0.16% for the week. The Dow Jones also finished with a tiny move higher, tacking on 0.04% throughout the course of the week. Unfortunately, that's where the gains ended. The NASDAQ and Russell 2000 both posted losses, falling 0.98% and 0.76%, respectively.
In addition to earnings, the market was dealing with other outside influences. Friday morning, China announced that its GDP was better than expected, although it continues to deteriorate. That lifted global markets and the U.S. was no exception. Better than expected earnings sent JPMorgan (JPM) and Wells Fargo (WFC) higher as financial shares regained its leadership role. Financials will remain under the microscope next week, however, as Citigroup (C) reports its earnings Monday morning. Bank of America (BAC) also reports earnings next week.
The FOMC released its minutes on Wednesday and the market was disappointed by the Fed's inaction. While the Fed did recognize that other stimulatory measures might be required, no plan was put in effect and traders interpreted that as a cue to sell stocks.
But after all the initial earnings reports, warnings, disappointing economic data and other global data, equities finished the week almost exactly where they began, leaving traders searching for clues as to the market's next move.