Working for the Weekend

 | Apr 19, 2013 | 4:32 PM EDT
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The bulls had a nice day with big winners such as Google (GOOG), Vertex Pharmaceuticals (VRTX), Chipotle (CMG) -- even stodgy old Microsoft (MSFT) -- but the all-day coverage of the drama in Boston gave the market action a surreal feel. CNBC decided to forego market coverage and talked about the manhunt, even though nothing much happened after the events of the early morning.

Despite the constant distraction, volume was decent, breadth was solid and the action trended upward all day and managed a strong close. This sort of recovery has occurred often, and has a tendency to turn into a V-shaped bounce.

The big issue now is whether the better reaction to earnings is going to put some bids under the market. The problem is that there was some real ugliness in IBM (IBM) and GE (GE) and we really haven't done enough to repair the technical damage.

Next week brings a slew of earnings reports, with the most interesting being Apple (AAPL), which reports Tuesday after the close. We had better earnings news today but the overall theme has not been positive and the market is unlikely to be forgiving of soft reports.

I would not be surprised to see selling pressure again next week, but the action today was a positive and it is what we need to create underlying support. There isn't any reason to rush and buy, but I'm going to spend time this weekend developing my watch list.

It was the worst week for the market in a while and really quite painful in small-cap land, but we need this sort of thing occasionally to reset things and give us new opportunities. Now we just have to find them.

Have a great weekend. I'll see you on Monday.

April 19, 2013 | 10:59 AM EDT

Biding My Time

  • Staying lightly invested here.

Good earnings from Google (GOOG) and Microsoft (MSFT) are helping to produce an oversold bounce but it is still quite choppy with the poor reports from GE (GE) and IBM (IBM) preventing any major upside. The constant coverage about the Boston situation is distracting many market players and makes talk about stocks seem irrelevant.

This bounce does not have the feel of buyers worrying that they are going to be left out of a big V-shaped recovery. It has more the feel of trying to catch some quick flips before moving back to the sidelines.

The market is rolling over a little again as I write and if it takes out the early lows, like it has the last couple of days, it is really going to scare away the dip-buyers who have not had much luck recently. It is always interesting how the folks who are so anxious to buy pullbacks in an uptrend suddenly disappear when we have a few failed bounces.

I have very little going but I did chase Vertex Pharmaceuticals (VRTX) and will look to build that position. The chart reminds me of LinkedIn (LNKD) in February when it gapped up big and then ran higher for another month. The move caught many by surprise and that helped produce sustained momentum.

First Solar (FSLR), which I've mentioned the last couple of days, is acting well and remains high on my radar. I'm very lightly invested and going to continue biding my time. I don't have the sense that things are going to run away to the upside right now.

At the time of publication, Rev Shark was long VRTX and FSLR, although positions may change at any time.

April 19, 2013 | 7:36 AM EDT

Breakdown (It's All Right)

  • If you want to trade, it's a good time to look for some quick bounces.

Doubt is good. It's an emotion we can build on. Perhaps if we feed it with curiosity it will blossom into something useful, like suspicion - and action. -- Jasper Fforde, "Shades of Grey"

The drama in Boston is overshadowing the market action this morning, but we are seeing a bit of bounce on a couple of decent earnings reports.

So far earnings have not been impressive. But Google (GOOG), Chipotle (CMG) and Microsoft (MSFT) are trading up on their reports and with the market a bit oversold that is enough for a decent bounce. We also have a pretty good bounce in gold this morning, which many traders have been anticipated.

There is no question the action has turned bearish this past week, but the big issue now is whether a bounce will hold and things can turn back up. It has happened quite often in the last few years, but as a trend follower my inclination is to not be too quick to assume that the worst is over.

I often write about not being anticipatory in looking for a market turn when we are up trending. That has been good advice, but the inverse hasn't worked as well. When we break down we are much quicker to turn up and if you anticipate a bounce you have often done quite well.

Nonetheless, before declaring that the worst is over and that the market has found support I want to see how this morning's bounce plays out. The hallmark of a downtrend is failed bounces. As the market struggles, more and more market players looks for a way to escape their positions, which means that they sell into strength and that prevents a bounce from turning into a new uptrend.

What has been quite remarkable about this market for so long is how we are capable of quickly forgetting the negatives that caused a selloff. In a matter of a day we can see sentiment totally shift and, before you know it, the race to add long exposure is back on.

One thing the bears are pointing out this time is how similar the action is to the major pullbacks that started in the spring the last three years. The pattern has been a very strong first quarter and then a breakdown in the spring before another burst of buying into the end of the year. There is lots of talk about variations of the old saying "sell in May and go away."

Another concern is that earnings really have been unimpressive so far. Good earnings reports have helped the market quite a bit since the low in 2009, but this quarter has had a very different feel so far with banks not doing well and very few strong reports. It is still quite early and we'll see what GOOG, CMG and MSFT do, but there doesn't seem to be too much interest in chasing earnings news so far.

Overall, we have a pretty standard pattern for a breakdown and a developing downtrend. We sold off on higher volume, had a routine oversold bounce and then rolled over again and made a new low before attempting another bounce.   That is exactly what you'd expect to see as the market breakdowns.

If you want to trade, it's a good time to look for some quick bounces. But keep the timeframes short and stops tight. The bears have the advantage and bounces should considered suspect.

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