When that time of year comes we always keep a keen eye on how stocks are treated if they beat or miss their numbers. We also watch for guidance. Will good numbers and good guidance get ignored or rewarded? Will bad numbers or guidance get a stock smoked or will anyone care? This gives us a real clue as to the markets overall big picture health. Most don't care about the big picture, but you need to care. In addition, if a market needs to sell, then bad reports can be the catalyst. Today we had a key leader in the financial world. Wells Fargo & Company (WFC), the best of the best, reported poor earnings with regards to revenues. The stock was smoked early on, but it managed to get a bid as the day went on, allowing it to close well off the lows.

Even though WFC has hung in there very well, it didn't sell hard after a disappointing report. Amazing, and telling in terms of the bigger picture. The bull market is very much alive. We know that anyway since rates aren't going anywhere. That said, good to see a bad report still not crush a stock that has risen quite a bit ahead of that report. With a massive number of key stocks reporting in the next few weeks, the market may have yet another excuse not to get hit hard to the down side, even though the bears have created some real technical damage with three open gaps lower. We may just boringly meander once again. We don't know, but this earnings season will be very important to the short-term health of this market. All eyes will be watching.

When discussing what the toughest obstacle for a market in terms of support or resistance, there is no question that gaps are the biggest headache for either side, since it takes big money at the open to create the gap. Once a gap open down occurs, and it never recovers as all three of these haven't, there is loads of supply back at those gaps trying to prevent those gaps from being taken out. There's a lot of dollars that supported the gap, and, thus, they'll be defended.

One gap is annoying. Two gaps a real pain. But three open gap downs that never recovered is a massive problem for the bulls, especially since the third and final gap down is the largest. Just getting through that first gap back to the upside is going to be extremely tough. The bulls seemingly have too much going against them to get this market rocking back higher with any force on a daily basis. It can happen as we're in a bull market. No bear in sight. That said, the technical damage is there, and the bulls are going to have a very rough time of things in the short-term. Just recognize the market is up against its biggest headache, gaps, gaps and more gaps lower. Moving averages are tough. Trend lines are tough. Gaps are the toughest of the group. The leader of the pack. It tells you to keep things light on the long side for now.

Now, if you're a real bear, you still have nothing to be happy about, even though you've created some real technical damage. You need to take out all the 50-day exponential moving averages on the index daily charts before you can celebrate. You need to take out the price level, but you also need to do it with force. And you need to do it with a nice increase in volume. You want big money supporting the break lower. Until that day comes along you have nothing to be happy about. In fact, in many ways, things aren't going that well, as the market shouldn't be hanging in all that well, since you've already created some real nice technical damage.

When the S&P 500 loses 1932, the Nasdaq 100 loses 4307, along with the Dow losing 16,761, then, and only then, can the bears celebrate. Until then, they've started the necessary process to get through those levels, but they still haven't actually accomplished their mission. Until that deed is done you can stick with some light long side exposure away from froth, and in to lower P/E stocks as a matter of safety, but, of course, do what feels right to you. I'm just one lonely voice in the crowd. So for now we watch how earnings get handled, and we wait to see if we either fill those open gaps somehow, or if we break below those key 50's.

One day at a time. Patience time folks.

Have a nice weekend!

Peace,

Jack

Jack Steiman is author of SwingTradeOnline.com ( www.swingtradeonline.com ). Former columnist for TheStreet.com, Jack is renowned for calling major shifts in the market, including the market bottom in mid-2002 and the market top in October 2007.

Mr. Steiman's commentaries and index analysis represent his own opinions and should not be relied upon for purposes of effecting securities transactions or other investing strategies, nor should they be construed as an offer or solicitation of an offer to sell or buy any security. You should not interpret Mr. Steiman's opinions as constituting investment advice. Trades mentioned on the site are hypothetical, not actual, positions.

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