Is This the Top?

Google's earnings report after the close of trading showed that while they beat the estimates pretty handily, growth is clearly showing due to a decrease in ad sales. Initially the stock traded over $20 higher to $400 + before ending at $388, up $9 on the day.

Many of the key financials closed lower, reversing earlier gains. Goldman, Wells Fargo, and Bank of America gave up all of their gains to close lower, and as you know, I believe that the stock market will only continue moving higher if the financials can keep leading the way. Personally, I think this group looks very tired, and a sharp pullback would not surprise me at all.

Earnings season continues, and all eyes will now be on GE and Citigroup, along with the scores of others reporting in the coming days. In thepast we've seen the best earningsreports announced first, which means thatwe may look back at this period and realize that Wells Fargo, JP Morgan, Google, and a handful of othersrepresented the minority of companies that actually reported above average earnings. If this is the case, then it's very, very likely that the bear market rally is going to stall (at a minimum) and that this could represent the highs we will see for some time. It's premature to make this call right now, and purely based on market internals I would expectmaybe a 3-5 day pullback followed by another rally that could still take us to 8500 or so on the Dow. This chart on the Dow issignificant. As you can clearly see, we have rallied into significant overhead resistance, and have now reached the levels last seenin early February. This overhangcould represent a large amount of selling pressure as many investors that are getting closer to breakeven from earlier purchases may want to use this opportunity to sell, thereby minimizing losses. This is why technical analysis, even ata basic level, is such an important tool.

I can just about guarantee this; if both the tech stocks and financial stocks begin to roll over and decline sharply, the overall stock market will be in very real trouble. My other concern is that Europe continues to show few signs of any recovery, and if the economic hot spots there begin to implode, this could help serve as the next catalyst that brings the bear market back with a vengeance.

Finally, much of this rally has been driven by short sellers covering their short positions. I believe that most professional short sellers covered the majority of their positions in mid-march, and are waiting patiently to begin shorting heavily once again. It actually looks like this has already started to take place, but it's impossible to tellright now. Again, trillions have been thrown into the economy by the government and FED, and it's still quite possible that theywill do whatever they can to keep this rally going. After all, they control the news cycle and they can use any tools at their disposal to try and force the market higher. It's the invisible hand at work, so we maysoon find out how much juice they really have.Remember, they have said this is an"economic war" and in war,any and all weapons can be used.

That's it for now. Make it a great Friday!

Kip