As earnings season unofficially kicks off following the release of Alcoa's (AA) quarterly results on Monday, the market has another reason to show some action. Alcoa met earning estimates and offered a positive outlook, providing comfort to those looking for a strong start to last quarter's earnings results.
S&P 500 (Figure 2)
Keeping the premarket momentum going, however, is another challenge that will be more difficult to accomplish. Despite the rally of December's lows, the move has been on extremely light volume and each step higher has been followed by a great deal of congestion. This has created a slower overall move to the upside than seen at the end of November, creating a shift in momentum that is going to leave the market facing resistance once again on the intraday time frame as we head into Tuesday's opening trade.
Additionally, the market rallied more swiftly off December lows than over the past two weeks. The indices are now onto their third high on the 30-minute time frame since Dec. 23. This is creating another shift in momentum on that time frame as well that will add further pressure to the bulls, as will the resistance from last year's highs, which will be quite difficult to break without yet another correction on the monthly time frame.
So, if you missed the afterhours breakout (like most of those who trade intraday would have), use extra caution on new bullish positions going into early Tuesday morning and expect setups in that direction to be limited overall to the smaller 2-5 minute time frames in the overall market today.