The precipitous fall in the VIX (volatility index) below the 20 mark (the dividing line between just plain bearish and very bearish) fueled some of the major averages to close above recent resistance levels. It was nice to see the S&P 500 (SPX), Nasdaq, and especially the market-leading Dow Transports (DTX) rise above these levels. However, the fact that the Dow Industrials (DJIA) and the small-cap laden Russell 2000 (RUT) were unable to pierce their own overhangs is a cause for some concern.
Sure, I could be making a mountain out of a mole hill and while I don't wish to rain on Jim Cramer's thesis that the bulls are back in town and are here to stay, I do want to point out a few things that are making me pause.
The first is IBM's (IBM) big earnings miss reported before the bell. The company's CEO, Ginni Rometty, admitted that Big Blue wasn't able to keep up with changing IT needs of their customers (aka, they were late to the cloud party). The situation was so dire that the company was forced to abandon next year's guidance--ouch! The news cratered the stock, sending it well below the $172.50 level which had been a source of major support for over a year.
Couple this with today's after hours earnings report by Apple (AAPL). As bad as IBM's report was, Apple's numbers were at the opposite extreme--it trounced estimates by the widest margin in ten quarters. You'd think the stock would be shooting through the roof right now but guess what? It's barely above its closing price! Of course, after-hours trades don't necessarily reflect how the stock will open tomorrow, but still...
What I'm getting at is that companies that shouldn't disappoint are, in fact, doing so while companies that report great numbers are being treated in a fairly ho-hum manner. My takeaway? I believe this is showing us that the bears do have some good reasons to stick around and they are not letting good news scare them away like it has done in the past. It appears that the direction of the market going forward into the holiday shopping season could be driven in part by how investors react (or don't react) to this season's earnings reports.
