Losing Momentum

 | Apr 24, 2014 | 4:15 PM EDT
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Good earnings reports had the bulls feeling optimistic, but it turned into a choppy, sloppy mess. The indices opened sharply higher on Apple (AAPL) and Facebook (FB) earnings but traded straight down before putting together a strong bounce. The bulls were never able to regain the opening highs and the market ended up drifting back down into the close.

Breadth wasn't bad with 2,600 gainers to 3,000 decliners but momentum stocks struggled again and many small-caps saw bids disappear. Precious metals led and there was strength in solar energy and semiconductors. But the list of stocks making new highs slowed to about 180.

Technically, the indices are still holding up but I'm troubled by the action in individual stocks. AAPL and FB should have led this market higher today but instead they provided a good opportunity to escape long positions. That is a major change from the chasing that was prevalent for so long.

Some stocks are acting OK and the bulls are always quick to point them out, but the overall action no longer reflects the chasing of momentum. The fear of being left behind as the market races higher is no longer driving the action.

This market has had a habit of bouncing back just when it starts to look dangerous, so we'll see what happens, but I'm not very optimistic that we can escape further downside once again.

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

April 24, 2014 | 1:13 PM EDT

Exercise Caution

  • This action has plenty of flaws.

This morning's gap-up open was slammed by sellers but we've bounced back nicely and the bulls are trying to hold us up. The amount of selling we saw at the open was not a good sign as it indicates that there are plenty of market players looking for exit points, but at least the dip buyers were there to give us good support.

As is usually the case, the key will be the close. If the bulls can deliver a good close after that ugly open, they will have the bears on the ropes. But if the sellers exert themselves late in the day, it changes the complexion of the action quite a bit.

The intensity of the selloff this morning on some very good earnings surprised me and it is making me cautious, even though we have recovered quite a bit. If market players are so anxious to sell into good news, they are unlikely to have much tolerance for any negatives.

If you combine that sentiment with the lack of quality leadership and the paucity of good charts, I see good reason to play strong defense. Of course, the fact that I see so little that I want to buy right now comes into play as well.

Be careful out there. This action has plenty of flaws.

April 24, 2014 | 10:17 AM EDT

No Leader to Follow

  • Even Apple can't prop up this action.

Apparently, the answer to the question of whether Apple (AAPL) and Facebook (FB) will be the leadership to take this market higher is a resounding "No." Sellers hit the opening gap hard and the indices are now in the red. AAPL was holding the Nasdaq up, but just barely.

Most worrisome this morning is how bids just disappeared for many momentum names, small-caps and biotechnology. This is the same kind of rotational action that killed so many stocks in the past six weeks. Breadth is a bit soft on the NYSE but is running close to 2-to-1 negative on the Nasdaq. Unlike yesterday, we don't have oil names running. Precious metals are up and chips are flat, but there isn't any good leadership other than AAPL.

I took more stops this morning and haven't made any buys. We'll see if we can stabilize after that ugly open, but buyers have to be skittish and may be more inclined to look for exits. I'm definitely leaning toward defense than offense right now, but the only stock on my screens that looks very appealing is Synergy Resources (SYRG).

April 24, 2014 | 8:08 AM EDT

Can Apple Be a Real Leader?

  • It is going to take some chasing to really shift this market.

"Leaders don't create followers, they create more leaders." -- Tom Peters

The recent market bounce showed some signs of stalling on Wednesday, but good earnings news from Apple (AAPL) and Facebook (FB) have the bulls back on track this morning.

FB put up solid numbers, although there are concerns about revenue growth. AAPL surprised nearly everyone with strong iPhone sales, great margins, increased dividends and a split. IPad sales were weak, but that seems to be a minor matter.

AAPL's huge weighting in the Nasdaq has it blasting higher, but the big question is whether it can help to lead the broader market higher. AAPL really has not been a leadership stock since it topped out in the fall of 2012. It underperformed in 2013 and is still well off its all-time highs.

The critics of AAPL, and there are many, scoff at the spilt as being the action of a floundering growth stock that doesn't want to be classified as a value play. Regardless of how you view it, there is no disputing the fact that the numbers are very good and AAPL is not expensive. Analysts are busy raising target prices this morning.

While AAPL fans are celebrating, the question is whether the report can keep the V-shaped bounce going and put the indices back to all-time highs. The Dow and S&P 500 are closing in on those levels, but even after the big gap in Apple, the Nasdaq brothers are still under their 50-day simple moving average and well off the March lows. It is going to take more than just AAPL to close the gap with the senior indices.

Yesterday, we had some problematic action again, as the rotation out of momentum stocks and into defensive names and oil-related names in particular picked up steam. There was quite a bit of weakness in things like Tesla (TSLA) and Google (GOOG), which had just started to bounce. Also, many small-caps lost bids again and signs of a rollover started to occur.

The major concern is that AAPL sympathy won't last for long. We do have some good gaps in the early going, but it is going to take some chasing to really shift this market. I'm not ready to believe that AAPL is going to be able to become the sort of leader that we need.

One of the big problems with the market since the early March highs has been the quality of leadership. We had some names like Microsoft (MSFT) and Hewlett-Packard (HPQ) lead for a while and defensive names in pharmaceuticals stepped up. Recently, oil names have helped, but we haven't had good momentum leadership in a while. Even during the V-shaped bounce the last two weeks we never saw much recovery in key names. Can AAPL now be the leader that we need? I am skeptical of that, but it doesn't mean that something else won't step up.

The mood is much better and we are set for a big gap, but there is some hard work to do to build on the recent V-shaped recovery.

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