After 16 days of a partial government shutdown, Congress finally came to terms to reopen the government and raise the debt ceiling. Talk about waiting until the last minute! Needless to say, stocks over the past couple of weeks have experienced an increase in volatility with triple digit gains and losses during the shutdown. Despite the turmoil in Washington, the Dow Jones Industrial Average (chart) on Wednesday closed up over 200 points, the Nasdaq (chart) managed to close at a 13 year high, the S&P 500 (chart) is nearing its all time high and the small-cap Russell 2000 (chart) finished the trading day at an all time record. Now the street can focus on Q3 earnings reporting season and so far, not so good.
After the close yesterday, bellwether International Business Machines (NYSE: IBM) shocked the street by missing revenues by almost $1 billion dollars and is down nearly seven percent in pre-market trading. Also after the close yesterday, Ebay (NasdaqGS: EBAY) reported in-line revenues, however guided lower for the upcoming holiday season. With Q3 earnings reporting season kicking into to high gear, I am questioning whether or not this will become the trend for the quarter? Most analysts do not expect this to be a robust quarter for corporate America, so now the question becomes does the imminent pullback in stocks become a buying opportunity before year end? Quite frankly with the headline risk out of Washington seemingly over for now, I beleive that the trend of pullbacks being bought will continue between now and year-end. I will look at key technical support levels for possible entries, and on the S&P 500 (chart) the 1680 zone appears to be the first level of support, which also happens to be its 50-day moving average, followed by the 1620 area. What gives me this vote of confidence of a continuing bull market into year-end is not necessarily how corporate earnings will fair, but the fact that the Federal Reserve continues to promise that it will do whatever it takes to support the economy, hence the bull market should continue. That said, when the Federal Reserve begins to taper, this will be the time that corporate America will truly need demonstrate top-line growth. In closing, no matter how your portfolio is positioned, it is usually the best practice to implement some type of protective stop initiative and of course always consult with a certified financial professional(s) while considering any investment strategy. Good luck to all. 🙂