Not a Pretty Picture

 | Apr 14, 2014 | 4:15 PM EDT  | Comments
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Stock quotes in this article:

ibm

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msft

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jnj

A big buy programmed kicked in with about an hour to go and saved the indices just as they started to turn red. That helped to paint a pretty good picture for the indices, but it didn't reflect the continuation of the poor action under the surface

Most notable was how bids seem to have disappeared in many small-caps. There wasn't any underlying support to sop up the selling pressure, which wasn't all that great. Sellers simply wanted to escape and no one was interested in taking their shares. What a difference from February when the appetite for stocks was so strong there seemed to be endless bids.

The overall feel of this market action is worrisome. The buy program in the final hour prevented a swoon, but the action was downright pathetic prior to that. No leadership, no support and little trust. This sort of sentiment eventually moves the market to a good low, but it's a painful process.

With this sort of big bounce into the close plenty of bulls will predict that it is clear sailing to the upside from here, but it is clear that there plenty of folks are still trying to reposition. Bounces can't be trusted for long, although the hope for another V-shaped recovery is high.

Stay cautious. This market still has a lot to do to prove itself.

Have a good evening. I'll see you tomorrow.


April 14, 2014 | 2:10 PM EDT

The Action Is Weakening

  • But still too strong to short aggressively.

The indices did a nice job of staying in positive territory and the Dow has a little bounce, but it isn't exactly a huge snapback. There is a little bounce-buying, but conviction levels remain extremely low. Tesla (TSLA), Apple (AAPL) and Facebook (FB) are still struggling to find solid support.

Breadth is better than 2-to-1 positive, and oil and gold are leading while solar energy is the biggest laggard. Momentum names had an anemic bounce at best, although it is good to see them hold and create an opportunity to build support.

Judging by how the bounce was destroyed last week, I suspect far fewer folks are looking for a V-shaped bounce this time. Those bounces have always started slowly on declining volume and then gained traction, but the momentum names usually led. That is not happening now, and the fact that the action is weakening as the day progresses calls into question how much underlying support there may be.

Overall, the market is still too weak to buy but a little too strong to be aggressive with shorts. It's a good time to finish your taxes -- although that may be more painful than this market action.


April 14, 2014 | 10:23 AM EDT

Some Old-Fashioned Fading Action

  • Dip-buyers are too beaten up to be very aggressive.

Gap-up opens on Monday morning have been a positive for the market, especially during our V-shaped bounce. Market players would fear being left out and would chase stocks higher the rest of the day.

That is one of the things that shifted after the central bankers went to work five years ago. In the old days, a gap-up open on Monday morning was typically an invitation to sell. Fading the open was a consistent source of profit for many traders.

So far this morning we are seeing old-fashioned fading action. The market has been trading straight down since the open. The dip-buyers have been too beaten up recently to be very aggressive about snagging stocks on a slight pullback. If they can hold, that will eventually suck in buyers, but this market needs stabilization before the folks on the sidelines stick a toe in.

I continue to do very little. I'm dinking around with some quick trades in Facebook (FB) but I still have no interest in trying to build longer-term positions in small-caps. I have don't much shorting but I am eyeing Cree (CREE), which is the sort of chart I'd love to buy if it were upside down.

Opening highs are now the key technical level and the close on Friday is the primary support. Until we break in either direction, it is going to be a slow slog. Stay patient and don't force it.


April 14, 2014 | 8:12 AM EDT

Keep a High Level of Caution

  • We have to be extremely skeptical of bounces.

When we can no longer change a situation, we are challenged to change ourselves. --Viktor Frankl

The market suffered some of its worst performance in years last week. What was most notable was that the 'safe harbors' crumbled as well and the Dow Jones Industrial Average and S&P 500 started to reflect the underlying weakness in momentum and speculative stocks that has been plaguing us for a couple weeks. My contention has been that the rotation into the likes of Microsoft (MSFT), IBM (IBM) and Johnson & Johnson (JNJ) was not healthy and that was confirmed this past week.

The good news is that sentiment has turned down sharply. The massive failure of the bounce on Tuesday and Wednesday finally has the bulls thinking that maybe the market has really undergone a change in character -- and that we aren't going to bounce back to easily this time. We have been missing skepticism and uncertainty for a long time and its return will likely give us more 'normal' action, although the bulls may miss the unrelenting straight-up action.

While there hasn't been any obvious negative news there have been a number of subtle changes such as the Federal Reserve moving forward with its tapering, the attack on HFT, the continuation of the very slow economic recovery and the anticipation of a poor earnings report. We also have seasonality turning down as market players contemplate the old saying "sell in May and go away".

What is most interesting right now is how negative things have become once that V-shaped bounce failed. It surprised many bulls that have become used to being bailed out after some minor weakness. This time it was a nasty trap and the extremely pressure on Thursday and Friday reflected the fact that many were looking to escape regardless of the cost.

Earnings season begins in earnest this week which should be particularly interesting as far as the market mood. Expectations are quite low but there is no question we will be hearing quite a bit about the winter weather and its impact on business. Big reports this week include Intel, IBM, JNJ, Yahoo!. Goldman Sachs,  Morgan Stanley and Chipotle.

Unfortunately, we still have 12 IPO's scheduled. The onslaught of IPOs has been a classic contrarian indicator and it now feels like there is some desperation to complete them while they still can. The best sign is if some were cancelled due to 'market conditions'.

At this point the best thing you can do is decide if you are going to play some quite counter-trend bounces -- or do you just stand aside and let the downside momentum play out. Some of the best bounces occur in poor markets and that is what I'll be looking to do while I stay patient in building longer-term positions.

There is little doubt that this market demands a high level of caution. There is no reason to believe that this correction is over and we have to be very skeptical of bounces. There are going to be plenty of folks looking for the V-bounce to kick in again. But the fact that they were burned once increases the chances they will be burned again. Keep plenty of cash on hand as good opportunities are developing.

We have a very flat start out there and not much going on so far.

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