An Impressive Reversal

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

msft

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ibm

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intc

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yhoo

The market had a nice bounce into the close Monday but the intraday reversal today was even more impressive. There was plenty of doom and gloom around midday as many stocks seemed to have no support at all. The major indices held around key support and that is when the buying really kicked in. The market made a U-turn to end in the green, even though breadth was sill negative on the Nasdaq.

Not everything bounced back, but this sort of washout helps form a low. It scares weak holders out, then, once the flippers do their thing, we end up with good support. I'm not ready to declare a bottom in the market, but this is positive action that could help some stocks form solid support levels.

What is most important is to keep in mind that this market is acting more like it did before the central bankers were the primary driving force. This is not 2013 action any longer. That seems more normal and less manipulated, but it doesn't mean that it is going to be easy to trade.

We have earnings tonight from Intel (INTC) and Yahoo! (YHOO), which should have some impact on the mood. Hopefully, the focus on earnings in the weeks ahead will give us a better market for stock-picking, but it is obvious that major computer programs are moving things around as well.

It has been a while since we have seen such strong emotions as the market makes sharp moves, but that is a positive and it will lead to better trading as it plays out.

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


April 15, 2014 | 1:39 PM EDT

Easy to Find Excuses to Sell

  • But no one thing can be blamed for this terrible action.

The dull start to the trading day turned into an absolute rout after the dip-buyers gave up hope and as the trapped longs continue to sell into the abyss. It is stunning to see the lack of support in biotechnology, small-caps and even momentum names like Tesla (TSLA), Apple (AAPL) and Netflix (NFLX).

What is most troubling about this action is that there aren't any obvious catalysts. While there is growing unease over the situation in Ukraine and talk of a Chinese slowdown, no one thing can be blamed for this terrible action. If there were one obvious catalyst, the market could price it in and move on. But we seem to have a slew of nagging issues, including a very weak economic recovery, poor earnings and concerns about valuations. It is very easy to find good excuses for selling.

It is also troubling to look at the indices over the past few years and see how little consolidation there has been along the way. It has been almost straight up, and the correction thus far is hardly a blip on the chart of the S&P 500. Other parts of the market are already in bear-market territory, but there seems to be a lot of air under many stocks.

There isn't much to do but stand aside and let this play put. Obviously, some stocks are getting stretched enough to the downside to set up for a bounce, but stocks can go much lower than you think they will in a bad market. A number of them are on my screen.

Be patient -- we'll see great opportunities eventually. The key is to make sure you have plenty of capital available.


April 15, 2014 | 10:23 AM EDT

'Lame Chop'

  • A lifeless market with lethargic bounces.

One trader described the action this morning as "Lame Chop." Breadth is even and the indices are up again, but most of the bounces are lethargic at best. We still don't have much life in most of the key momentum names, as you can see from Tesla (TSLA) and Facebook (FB), which are both red. Oil and biotechnology are leading while gold, solar energy and steel are laggards.

Bad markets don't scare you out, they wear you out. Capitulation may be a nice theory but rather than a sudden panic low, markets will bottom with a whimper after enough market players quit in disgust. Constant smaller losses over a longer period cause folks to give up rather than a sudden one-day drop.

The good news is that this market has already done quite a bit to raise the level of disgust. The senior indices are still holding up fairly well and we have market commentators talking about a "possible" correction, even though the average stock is already close to bear-market territory.

The action is unquestionably poor and we have little choice but to proceed with caution.

On top of the dismal action, I have to go to the dentist and mail a big check to the IRS. At least I can look forward to a better day tomorrow.


April 15, 2014 | 9:05 AM EDT

Don't Be Too Quick to Trust This Market

  • The market is still in a clear downtrend.

"Who would not rather trust and be deceived?" -- Eliza Cook

A late rally saved the indices from another ugly session Monday, but under the surface the action was still quite poor. Many small-cap names were brutalized as bids disappeared, and the bounce in most of the leading momentum stocks was anemic at best. Of course, the Dow gave an appearance of strength, but if you have used this index as your guide, you have been slaughtered in many of the non-defensive stocks you may have been holding.

One of the more interesting developments yesterday was the skepticism over the likelihood that a bounce would hold. Unlike last week's big bounce, which many thought would turn into another "V"-shaped recovery, market players harbored a high level of doubt about the action yesterday. We heard many commentators talk about folks taking the opportunity to sell into the strength.

Volume feels substantially from that of Friday, and breadth was just barely positive on the Nasdaq. This isn't the sort of action that inspires upside follow-through. Still, for much of the last few years, internal weakness like that has been deemed irrelevant. More often than not, market bounces have been on declining or mediocre volume, and they've been led by a small group of key momentum stocks.

The biggest change in the market over the past month or so has been the loss of leadership. Such stocks as Microsoft (MSFT) and IBM (IBM) have held up the indices, but they aren't the sort of leadership that causes strength to broaden out. They constitute an alternative to growth stocks, and they don't provide the sort of positive sentiment that is needed for a sustained uptrend.

What was particularly troubling about the action yesterday was how bids simply disappeared for many small-caps. Stocks that have been pounded for a couple weeks continued to sell off as dip buyers refused to step up and stuck bulls sold into the black hole. We need some interest in buying "value" and "bargains" in order for the market to find a good low.

Earnings season commences in earnest tonight amid scheduled reports from Intel (INTC) and Yahoo! (YHOO). Intel has often been an important bellwether, as its chips are the basic ingredients of technology. The market has often seen major turning points in concert with the Intel report. The company has had quite a few positive analyst comments lately, so expectations are high, but an upbeat report there will be very helpful.

At this juncture, the market is still in a clear downtrend, and we need to be skeptical of bounces. I was particularly concerned about the underlying action and lack of buyers in small-caps yesterday. If that doesn't change soon, it is going to be a very tough slog.

Early indications are slightly positive as the last bounce yesterday seem to have carried over. Don't be too quick to trust this market.

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