Be Ready to Work on Monday

 | Jul 11, 2014 | 4:12 PM EDT
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The good news is that the selling from earlier this week didn't gain any momentum and the action improved throughout the day. The bad news is that it was one of the lightest volume days of the year and the level of interest was abysmal.

Light volume really hasn't matter much to this market for a while, but it does exhibit a lack of conviction and keeps things a bit choppy. Shorting a low-volume rise has been downright suicidal, but the inclination to do so is understandable.

Thankfully, next week we will have the kickoff of key earnings reports. It starts off on Tuesday with JPMorgan (JPM), Goldman Sachs (GS), Intel (INTC) and Yahoo! (YHOO) and then we Google (GOOG, GOOGL) and IBM IBM) report on Thursday afternoon. At least we'll have some action to shake things up a bit.

Overall, the indices are technically OK but they do have a few flaws. The selling this week did some damage under the surface but the major indices remained quite healthy. A couple more days of distribution will change the complexion of the market. However, we do have good underlying support and dip-buying, which is the key to the market right now.

Earnings season will liven things up a bit, so enjoy the weekend and be ready to go to work on Monday. I'll see you then.

July 10, 2014 | 10.14 AM EDT

Stranded in No Man's Land

  • Market players are waiting to see strength before making moves.

If the old saying about not shorting a dull market has any truth, then we should end up with a huge day because it doesn't get much duller than this.

It is a pitifully slow start with a negative bias as well. Breadth is running 18 to 31 negative with minor strength in solar energy and precious metals. Oil, banks, biotechnology and homebuilders are seeing pressure. The momentum list is equally unexciting, with minor upticks in Netflix (NFLX) on a target increase and slight interest in Amazon (AMZN).

I suspect that many market players are waiting to see strength before making their moves. There is fear that momentum will fizzle out quickly, so they want to see a little energy build before they start to chase a little.

So far, I'm doing nothing but combing through my charts looking for something of interest. Sometimes in an environment like this, traders will gravitate toward a few hot stocks and create some action, but not much is developing so far.

The nice thing about this sort of day is that you can be patient and stay selective. But if you press too hard and force trades, you can suffer nicks and cuts. The market is in in no man's land right now and there just isn't much of an edge in either direction.

July 11, 2014 | 7:35 AM EDT

Keep Playing Defense

  • The market, after all, is flashing a few technical warning signs.

What I lack in talent, I compensate with my willingness to grind it out. That's the secret of my life. --Guy Kawaski

On Thursday, the major indices rebounded sharply from an ugly start, but they closed in the red and remain under technical pressure. The bulls were happy to see the good underlying support, but there is still work to do if this market is to regain its footing.

News stories provided a few convenient excuses for some selling, but the news isn't driving the market. It's the market that's driving the news. A Portuguese bank and the economy in Italy were important because the market is technically tired and looking for reasons to justify some selling. In a different environment, those headlines would have had even less impact. But investors are currently harboring some concern about a market top, and that means a greater inclination to heighten the perceived importance of those stories.

That is an important concept to keep in mind as we enter earnings season. Earnings news isn't inherently good or bad. It depends on expectations and emotions. If expectations are high, even very good news can disappoint, and vice versa. Given how much the indices have run up since the start of 2013, the potential for disappointment exists -- but typically earnings have been good enough to keep the market plugging along.

The big question to ponder right now is whether this week's corrective action is over. While the senior indices have barely budged, the dips and pullbacks in momentum and small-cap stocks have been much more severe. The bulls that focus on the Dow and S&P 500 won't see it, but there's been some nasty action in many individual stocks. Just look at recent momentum leaders, such as Tesla (TSLA), Palo Alto Networks (PANW), GasLog (GLOG) and GW Pharmaceuticals (GWPH).

At this juncture it is important to be cautious, but there's no clear reason to be a growling grizzly. As we all know, the market has had a very strong tendency to quickly bounce back from these bouts of selling -- and, with earnings on deck, there will be plenty of cross-currents to give market players motivation.

The key right now is to play defense in case this technical pressure turns into something more sinister. The market is flashing a number of technical warning signs, and we shouldn't be so arrogant as to ignore them. The market has fooled us quite often just when it looks like it may be on the brink of something dangerous. However, that doesn't excuse us from taking steps to make sure we protect our capital.

The nice thing about earnings season is that it tends to shift the focus to individual stock-picking. There will be some very good reports, and some bad ones, and these will create opportunity regardless of any macroeconomic factors.

As always, the important thing for us is to keep on grinding away and looking for opportunities. Even if the indices have some issues, there will be some pockets of action if we keep on digging.

We have a slightly positive open on the way, as the news wires were mostly quiet overnight. What's important right now is for the market to stay above Thursday's lows. If those levels come back into play, we'll have a problem.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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