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Alcoa Beats and Markets Up

Lee Siler | Thursday, July 9th, 2009

A better than expected earnings report from Alcoa has stocks in Europe moving higher. This move is spilling over to the U.S., as stock futures are indicating a jump in prices. Although Alcoa reported its third consecutive quarterly loss, they did beat estimates by a large margin due to significant cost cutting.

There has been quite a bit of technical damage on the Dow Jones and S&P 500, as both indices are trading below their respective 50 and 200-day moving averages.  The Nasdaq has broken its 50-day, but still has a way to go to meet its 200-day.  Regardless, these are ominous technical indicators that lead me to believe this correction is not over yet.

I mentioned yesterday that the Dow and S&P were in the midst of a head and shoulders top.  Today they are both eerily close to confirming that formation.  If confirmed, it’s likely we would see the S&P 500 trade down to 800 and the Dow Jones down to 7400-7500.  Yesterday, these indices tried to break down, but managed to keep their heads above water, so to speak.  Today can certainly help that cause if the market rally’s.  However, I still think you need to be extremely cautious on any new buy ideas.

Mid-day yesterday I closed out my position in the FAZ, which is the Direxion Financial Bear 3X.  This ETF capitalized on the weakness in the financial and subsequently handed my clients a profit of 19%, in a relatively short period of time.  We bought at $4.95 and sold at $5.91.  However, if you look at the stock today you’ll notice it trading at over $53 a share.  No we didn’t have a collapse in the banking system.  That stock simply executed a 1 for 10 reverse stock split.  So a $53 price is like $5.30.  I’m not sure why they did this, but I’m glad I’m out for now.

Until tomorrow, let’s have a great day…

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