EARNINGS SEASON KICKS OFF WITH ALCOA

Alcoa earnings signal the beginning of "earnings season" which is still not as good as "football season" which should start to get underway at the end of the month. For those that don't know, earning season is a period of about 4 weeks when the majority of the S&P 500 companies report their quarterly earnings. The earning season months are January, April, July, and October. It begins with Alcoa (AA) about 10-12 days into the earnings month. The big earnings push will be the next 14 days. I'm anticipating that the earnings will meet the estimates (in most cases), but that the future guidance might be adjusted downward. Alcoa bettered their earnings estimate and actually increased their guidance for the next quarter. The stock was up in after hours trading when the report came out. This will usually mean that Alcoa will gap up at the open. I'll be interested to see how it trades after the gap up (if it does end up gapping up). If it sells off and closes lower than the opening price, it will mean that AA is likely to continue to trend lower. If it can close higher (with higher than normal volume), it might be able to break above its 50 day MA. The rally has continued in the market over the last few day, but the volume has been lower each day...despite the higher highs. This is usually a very bearish sign and it backs up my belief that this is still just a rally within the downtrend. I am becoming more confident again that the next move down is coming soon. You are starting to see more and more people coming out with bullish outlooks. This is important. It is hard for the market to move down when everyone thinks it is going down...just like it is hard for the market to go up when everyone thinks it is going up. This recent change in sentiment could help set up the next move down. Is the next move down guaranteed? No....but it is probable until proven otherwise. We are at 1078 on the S&P 500 which is very near the .564 retracement of the last move down. This is a bit above the 1071 area I mentioned last week, but it is still within the retracement "zone". If the market can get above its 50 day MA and the "buy" volume starts to increase above the average amount, I might back off of my huge downward move expectation. The 1131 area is where I would begin to turn bullish. If we get above that level, I will be pushing call option trades. I mentioned last week that a continued rally was expected after the July 7th move. We have seen that. I also said that the smarter trade would be to wait for that rally and set up your put option trades for the next big move down. We are very near the area where we expect the next move down. We are also getting near the end of the time estimation for the correction. I said last week that I expected it to be about 3 to 7 days. The 7th day will be around Thursday. Intel reports tomorrow after the close, while JPM, C, and BAC report on Thursday and Friday. The market reaction to those reports will tell us more than Alcoa. You don't need to take a chance in the market over the next few days until you get some sort of confirmation. If the market drops back below 1040, start aggressively buying puts again. If it moves above 1100, you might take some chances on a few call options. There are a few stocks in great reward to risk positions. If you haven't yet entered a put option trade on AXP, look into it. It is very near a key resistance level around $43.25. You could buy a put option here and put a stop above that high. If you don't yet know how to place stops, just sell the option for a small loss if the stock trades above that high. If that resistance holds, the downside target would be at least $37 which would give you a fantastic reward for the relatively small risk. You could even wait for it to get back below its 10 day MA if you wanted some confirmation....but that would change the reward to risk potential of the trade. The GLD still looks very good for a put option trade as gold continues its recent drop in value. This also has a very nice reward to risk...if you use the December 2009 high as your stop loss point.