By Mike Paulenoff, MPTrader.com
As we head into the mid-afternoon session, it's been a very quiet day. The indices didn't react much to producer prices or to the trade balance, both of which were perceived to be very good numbers. In terms of the trade balance, you'd expect that after the relentless decline in the dollar for months on end, at some point it would improve the trade balance, which it has a little bit anyway. Keep in mind, however, that those trade figures were for November. The month of December was a devastating month for the dollar, and the deterioration of the dollar should turn up more in the trade balance figures next month.
As far as the market goes, we've basically been unchanged all day. That's largely due to afterhours earnings that are expected from Intel and Yahoo after today's close. Most everyone is figuring the numbers will be strong. The only question we have is whether the guidance will be strong or cloudy. Frankly, in this environment I'm not sure that these companies can go out on a limb that much about what the next six months might bring. They will probably have to couch it in a lot of "if" statements and contingencies. The bottom line for earnings is that: Are these companies going to grow in the next quarter or two at a fast clip like everyone thinks?
Keep in mind that a lot of the companies have run up in anticipation of that and have to justify these valuations, which could prove problematic in the weeks to come or maybe in the hours to come depending on what these conference calls look like after the close.
To get specific, in the March S&P we've been trading in a narrow range between 1122 and 1128. We're at 1125 as we speak, and unless we break 1122 the bulls will remain in control of the near-term or micro market direction. If for any reason the S&P does break above 1128, I think you'll see a surge that caroms into Friday's recovery high of 1131.
Then, of course , there's earnings, and who knows what kind of reaction there'll be. There could be a pop on the upside and then a sell-the-news type of situation. But for now the bulls are still in control and will be in the E-mini March S&P unless 1122 is broken.
To get a near-term or a more meaningful top formation confirmed, the E-mini March S&P has to break below 1113 ,-1114. That would put a nice-looking rolling top in place, which could have objectives of 1090-93 to start.
As far as the E-mini Nasdaq goes, it's almost been in a very narrow range all day. Every time the bears break a minor or micro support level, like they did mid-session at 1527, there isn't much selling pressure to follow through to the downside. So, without the selling pressure, the support levels are fairly meaningful.
However, there are two support levels, which if broken for any reason, will be hard to imagine that they are meaningful. The first being 1521, which is the trendline off the December 16 lows. If 1521 is taken out and there is some follow-through downside pressure, 1515-1514 is the key level that is analogous to 1114 in the E-mini S&P.
If 1515 in the E-mini Nasdaq is broken, then I think there's a good 30 points on the downside towards 1490-95 to start.
Going over to the QQQs, which are trading like the Nasdaq, as always, they are stuck in a range. There's a wider range and there's a narrower range. The narrower range is inside the major range, which is 38.18 down to about 37.90. The key level there would be a break below the January 7 trendline later this afternoon. If that happens, 37.80 has to be broken to get any meaningful downside movement, and then 37.61. 37.60-.61 spans a weak and a half of support. If that level is taken out, there should be downside follow-through, which should amount to about 60-80 cents on the downside, down to the high 36 area.
If that doesn't happen, then the bulls will remain in control of the Qs, and 38.42 is the key level on the high side for resistance. If that's taken out, you'll go to 38.70-.80 as our next upside target, and that could occur in reaction to the earnings reports this evening.