Things Aren't so Rosy

 | Jul 25, 2014 | 5:07 PM EDT
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Dip-buyers were too lazy to do much on a summer Friday, which caused the market to drift lower on anemic volume. Breadth was about 2 to 1 negative with ugliness in semiconductors and Amazon (AMZN) causing a bit of worry. Small-caps floundered, and they continue to be the most worrisome sector of the market.

I've been complaining about how the action under the surface has been much worse than on the senior indices, so it was positive to see the indices down today to confirm that things aren't all rosy. We still don't have any significant pressure or technical damage, but the action in individual stocks has been increasingly choppy and sending warning signs.

The bears were excited late in the day about a slightly bearish call from Goldman, but they still expect equities to be up 1.8% over the next three months. That doesn't seem like much of a reason to rush and sell.

The biggest problem with the market is that stock-picking is hard. We've had a few earnings reports, like Chipotle (CMG) and Intuitive Surgical (ISRG) that have had sustained momentum, but it is a small group.

Typically, the market continues to find good support no matter what the negatives are. There are plenty of international events to worry about and Goldman is raising the issue of higher interest rates, but there still is no run for the exits. It isn't a great market, but the trend is holding.

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

JULY 25, 2014 | 10:35 AM EDT

Keep an Eye on Day Lows

  • There isn't much support for dip buying today.

We are seeing support after the gap down at the open, but the dip buyers are merely holding us steady so far. Breath is two-to-one negative and we are seeing weakness in semiconductors, chips and biotechnology. Precious metals are leading. Other than a few earnings plays like Baidu (BIDU) and Deckers Outdoor (DECK), there aren't many pockets of momentum so far. Facebook (FB) and Apple (AAPL) are holding steady, but there isn't much interest in chasing.

I've not liked the trading in this market much, as there isn't much to do but play "small ball." You have to be quick to take some profits and it is quite easy to be surprised by suddenly reversals like we have in Spansion (CODE) today.

I added to a position in BioFuel Energy (BIOF) this morning and am playing with a few other odds and ends, but right now my main focus isn't on building up good positions but on making sure that when I have gains I don't let them slip away. This is not a market in which I want to be overexposed for very long.

Keep an eye on day lows. We don't seem to have as much dip-buying support today and that could cause some issues when day low stops are triggered. 

July 25, 2014 | 8:12 AM EDT

The Bulls Focus on Indices

  • But individual stocks send very mixed signals.

"One is fruitful only at the cost of being rich in contradictions."

--Friedrich Nietzche

Good earnings reports form big cap names such as Apple (AAPL), Facebook (FB), Under Armour (UA) and Baidu (BIDU) are keeping the senior indices close to their highs, but there is some shaky action under the surface that is keeping things tricky. The biggest problem is that the strength is narrow. Small caps continue to struggle and the number of stocks making news highs is quite small for a market hovering at all-time highs. Of course volume has been lackluster, but that has been the case for ages.

The bulls shrug at the nitpicking and stay focused on the indices. If that is all you care about, then there is nothing at all wrong with this market. Trying to use ETFs to short the indices has been a terrible trade unless you are content with catching a few pennies now and then. The smart move is to stick with the indices and ignore the pessimism.

If you trade individual stocks, it is a different story. The great bulk of stocks are not acting like the indices. There is enough strength among big caps to keep the indices near highs, but there is a tremendous amount of choppy and inconsistent action in individual stocks. Buying a standard breakout has been a coin toss lately, and many traders are complaining about the lack of follow-through. 

This mixed action in many individual stocks explains why sentiment remains so soft, although the folks in the media constantly point out how we are at all-time highs. Market players simply don't feel the love, unless they are simply holding on to indices.

This sort of action makes it very easy to cultivate a bearish bias. Many traders want the market to come down, because they are having such a hard time trading it. I find myself trying not to be overly negative, although I see so much poor action among small caps. I always let individual stocks be my guide to my overall market bias and they are sending very mixed signals. A few will work, but the fades come fast and hard and it is very easy to give back some good gains if you aren't flipping quickly.

In a strong market uptrend it should be easier to hold positions and not be stopped out. With a few exceptions that hasn't been the case lately, and that makes me wonder how bullish things really are.

We have a little early weakness this morning as Amazon (AMZN) and Starbucks (SBUX) disappoint, but Baidu and The Royal Bank of Scotland (RBS) put up solid reports.

The situation in Ukraine is heating up and economic reports have been mixed, but so far this market is not looking for excuses for aggressive selling. With the indices at all-time highs, the big frustration continues to be fear of being left behind. 

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