If you are a fan of increased volatility, like me, this market is offering some very intriguing action. A poor open like we had this morning can cause quite a bit of anxiety, but the inclination of the market to bounce takes the sting out of it.
A good hard shake helps to create new opportunities, which is why I often root for some downside. It is like the good old days of trading, before the only thing that mattered were central bankers and computer programs.
While the market did enjoy a good-sized bounce, that doesn't mean that it is technically healthy. We are back below some key overhead resistance and the V-shaped bounce has been undermined. What is more worrisome is that the theme for earnings is very negative. We had more misses overnight than I've seen since the 2008 plunge. We'll see if Apple (AAPL) can help the bullish cause, but this strong dollar is going to be used as an excuse by other companies as well.
One bright spot is that small-caps outperformed. It is likely that market players were looking for stocks that didn't have the same currency issues as the multinationals. That likely helped some biotechnology names as well, since they don't have big revenue numbers in the development stage.
Keep in mind that we have the FOMC interest-rate decision. Many economists are starting to believe the Fed will push back its rate hikes until next year. Any hint of that in the policy statement tomorrow will likely be a market positive.
Some market pundits believe that this price action today is the start of the long-awaited topping process that will lead to a significant correction. Currency issues are what caused the massive 1987 crash, so if you want to be dramatic you have some ammunition. There certainly is the potential for a downtrend to emerge and we'll need to be extra vigilant. Overall, the major indices overstated the pressure on the broad market, but there are still plenty of concerns. This weak finish is another area of concern. AAPL is coming up and will help to determine the mood.
Have a good evening. I'll see you tomorrow.
January 27, 2014 | 1:02 AM ET
Small-Cap Strength Offers Hope
- They can spur a stock-pickers' market.
The indices are off their lows, but what is most interesting is the outperformance by small-caps.
It makes sense that small stocks would do better if the strong dollar really is the big issue, since they have less international exposure. That makes for some good stock-picking opportunities, but that doesn't mean we can ignore overall market direction.
There are quite a few pundits declaring that this action is significant and is signaling a major change in market character. The logic is obvious. We had a slew of poor earnings report among large multinationals and they all cited the strength of the dollar as a contributing issue to their problems.
The dollar strength isn't anything new, so it may seem like an explanation in search of a problem. But it is a theme that we need to watch to see if it plays out as more earnings reports come in. Apple (AAPL) tonight should provide a little additional insight into currency issues.
AAPL is always an entertaining report because of the expectations. There is no question it is likely to have a huge quarter, which many think is already priced in, but that thinking has confounded traders who think they have a feel for sentiment. Guidance, of course, will be key. But I would not be inclined to bet against AAPL.
The other thing to keep in mind before being too carried away by the earnings news today is that we have the Fed on deck. The market loves to love the Fed and they can undermine a bearish thesis very quickly.
Over the last few years, the bears have often thought that this is finally the start of the big, long-awaited correction. It may play out a bit more, but that thinking just hasn't worked. This market just keeps coming back regardless of more and more negatives.
Some individual stocks are doing well. Maybe if we are lucky, this will morph into a stock-pickers' market where small-caps are favored over multinationals. The media can whine about the DJIA while we find good action in the broader market.
January 27, 2014 | 10:36 AM ET
It's a Crucial Moment for This Market
- The longer we can hold above the early lows, the better.
We have some drama this morning to keep things interesting. The big story is that the strong dollar and currency movements are now at the forefront. The market is sorting out the winners and losers and right now it is the big multi-nationals with lots of foreign business that are the losers. Unfortunately, when we have an open like this, everything is sold as the big index computer plays don't bother to determine if a stock may actually benefit from a strong dollar.
Overall the action isn't that bad. The big cap names like Caterpillar (CAT) and Microsoft (MSFT) have a large impact on the senior indices, but under the surface breadth is running about 1500 gainers to 3750 decliners, which has improved from the open. We have some relative strength in gold, oil and drugs and some weakness in chips, retail and biotechnology, but nothing that profound.
The dip buyers are active, but a bit hesitant to really press. The longer we can hold above the early lows, the braver they will become, but there is some nervousness that this poor earnings theme is going to persist. That is a real change in character, and it can be a major issue especially if the Fed continues this charade about raising interest rates in the near future.
Right now I'm looking for some new buys, but not doing anything very big. A couple technology names of interest are Himax Technologies (HIMX), which I added to the Sharkfolio and Planar Systems (PLNR). Things like TSEM, MIFI and IPHI are holding up well, but I'm doing nothing with them at the moment.
The key now is that this market hold above the early lows. If it fails, that changes things quickly.
Jan. 27, 2014 | 7:15 AM EDT
We Need Better Earnings Reports
- Or this is going to become a very bumpy ride.
The trouble with weather forecasting is that it's right too often for us to ignore it and wrong too often for us to rely on it.
-- Patrick Young
So far the big snow storm isn't fulfilling all the dire predictions but it doesn't much matter anyway as it is just another day of ordinary operations for the stock market. The powers that be have no intention of closing the NYSE. If there is money to be made it doesn't much matter how, if the working stiffs are inconvenienced. We are going to hear about the snowstorm endlessly, and it probably will impact volume today, but it is mainly something for the media folks to sensationalize.
Early indications are red, as a number of earnings reports, in the US and Europe, were rather disappointing. In the U.S., Microsoft (MSFT), du Pont (DD) and United Technologies (UTX) disappointed, while in Europe Siemens AG and Royal Philips NV posted soft numbers. In addition, concerns about Greece are bubbling back up, after the market did a fine job of ignoring them yesterday. The poor earnings are the main theme and there are quite a few of them.
The Nasdaq has been up six days in a row, which is classic V-shaped action, but we are in position to see now if this market has the juice to make it all the way back to new highs. There has been more skepticism about the V-shaped move this time, but it has developed like previous ones despite the rocky news flow. Obviously the ECB quantitative easing announcement has been the big driver but the issue is whether it is going to have the same staying power that the Fed's QE moves.
We'll have a little test of the bulls' resolve and the dip buyers' interest this morning, but the focus is going to quickly shift. We should start to hear some chatter about the FOMC interest rate decision, which is due out tomorrow, and we probably have the most important earnings reports of the quarter tonight when Apple (AAPL), Amgen (AMGN), Illumina (ILMN) and Yahoo! (YHOO) report. AAPL in particular is going to be quite interesting as they will have a huge quarter on iPhone sales but then guidance will be the big issue.
We haven't heard much about the Fed lately as the ECB has taken center stage but there is going to be renewed talk about when interest rates are going to start to rise. Given how strong bonds have been it is rather surprising that is even an issue, but the Fed can't back down too quickly from its theme that the economy is improving quickly enough that the raising of rates is inevitable.
Oil stays under pressure despite the pleas of the bottom fishers and that is another negative for the market to deal with. Low gas prices don't offset the fact that global demand, especially from China, is slowing. Many pundits see the pressure on oil as being a major warning sign.
The market was due for a rest and with all the politicians acting like a snowstorm is going to cause the end of the world there is an excuse for a pause, but the number of lackluster earnings reports is an issue. We need to see some better reports tonight or it is going to be a very bumpy ride.