After three poor days of action, the market finally put together a decent bounce. It came on light volume but it was impressive that the mediocre Apple (AAPL) report seemed to be a company-specific event. In fact, the selling in AAPL probably boosted many other names as money rotated into technology names with better relative strength, such as Google (GOOG), Tesla (TSLA) and Netflix (NFLX).
This was a classic low-volume, oversold bounce, the sort of bounce that has previously led to V-shaped recoveries. Typically, this kind of bounce doesn't seem trustworthy, but for some reason market players are quick to embrace the strength rather than use it as a means to escape a market that has not treated them very well lately.
Every time I think we can't produce another V-shaped bounce, we seem to do it, but I have major doubts that it will be so easy this time. The number-one reason is that the market action in 2014 isn't what it was in 2013. This has been a very different sort of market since the Fed started tapering. There has been a much greater focus on stock-picking, and stocks have been far less correlated. I believe that is likely to continue.
Tomorrow we will have the FOMC policy announcement and endless talk about tapering. Last time, many market players were surprised that the market reacted in a positive manner to tapering, but since then we have a number of weak economic reports, including today's durable goods numbers, which have called into question how fast tapering should proceed.
The Fed announcement is going to be a catalyst, but it isn't clear what exactly the market wants. We'll have to be ready to adjust as things develop.
Have a good evening. I'll see you tomorrow.
Jan. 28, 2014 | 10:45 AM EST
The Chase Is On
- For fear of being left behind.
The dip-buyers are inching in this morning. And it looks like money coming out of Apple (AAPL) is flowing into big-cap technology names Google (GOOG), Facebook (FB) and Amazon (AMZN). It doesn't hurt that many names are a bit oversold. Typically, these dip-buying bounces start slowly and then gain traction the longer they last. Buyers want someone else to step up before they jump in out of fear of being left behind.
Breadth is quite good with more than 3,700 gainers to 1,350 decliners, but the best news is that there's energy in the momentum names again. Solar stocks are bouncing and names like Twitter (TWTR), YY Inc. (YY) and Tesla (TSLA) are catching bids.
This sort of action has tended to morph into V-shaped moves in the past. The buyers have seen those straight-up recoveries so often that they are afraid they will be left behind and they are willing to chase.
I'm not yet convinced that we are going to see one of those quick recoveries again, but I'm playing a few bounces in some of the solar names like Canadian Solar (CSIQ) and Trina Solar (TSL). Small-caps like Revolution Lighting (RVLT), On Track Innovations (OTIV), BioTelemetry (BEAT) and Gastar (GST) are on my radar but I'm in no hurry to build positions. Himax (HIMX), which looked great yesterday, had a downgrade today but I think it will come back, so I'm sitting on the shares I have left.
Don't be too overconfident that the worst is over. This market is due for a bounce, but I wouldn't be surprised to see another selling squall kick in after the Fed announcement tomorrow.
Jan. 28, 2014 | 8:07 AM EST
A Sharp Recovery Looks Unlikely
- I don't expect the dip-buyers to be very confident.
Oh, somewhere in this favored land the sun is shining bright;
The band is playing somewhere, and somewhere hearts are light,
And somewhere men are laughing, and somewhere children shout;
But there is no joy in Mudville -- mighty Casey has struck out.
-- "Casey at the Bat" by Ernest Lawrence Thayer
Apple (AAPL) isn't the most important stock in the market these days -- that title probably belongs to Google (GOOG) -- but its earnings report has served to confirm this overall disappointing earnings season, showing that consumers aren't consuming and that the economy is struggling. Apple used to be very well-known for the way it lowballed its guidance and routinely crushed the published estimates. It no longer plays that game, and maybe that's part of the reason it is no longer the shining star it had once been.
The good news is that Apple is probably more a company-specific event these days, and its earnings report won't necessarily weigh on the broader market. The stock is now a value play, and it will not attract momentum money unless some new catalyst appears, such as a share buyback or a new cutting-edge product.
The more important issue for us to contemplate this morning is whether the broader market can regain its footing. Overseas markets ignored Apple and are rebounding. But you have to wonder if, this time around, we will see the sort of V-shaped recovery that has saved the bulls so often the past few years.
Typically, when markets crack like this one has, they don't go straight back up. There are trapped bulls who want to exit and emboldened bears who want to short -- and who use bounces to sell. For a number of reasons the dynamic has not tended to materialize in recent years, but 2014 is looking a lot like the old days, when emotions and psychology drove the price action, rather than liquidity and central bankers.
The bulls will scoff at the idea that the character of the market has shifted, but all you have to do is look at the action in the major indices since the new year started. The averages have not been able to make any significant upside progress so far, and the general focus has been on individual stock-picking, rather than on correlated action driven by macroeconomic concerns.
Again, earnings season has been quite disappointing so far -- Netflix (NFLX) is just about the only big-cap that has excited investors. Because of this, some market players are hopeful that we may see a more market-friendly Federal Reserve tomorrow when the central bank issues its interest-rate decision. It is widely expected that the Fed will give us another round of stimulus tapering, but there is some hope that this will be put on hold. That, in turn, is helping to put a bid under the market. The Fed has saved the market innumerable times in the past five years, and many are looking for it to do so again.
The market is due for an oversold bounce, and we have some indications that such a move is kicking in despite Apple. But would we trust such a move to last? That has been the play for a long time, but this market is not in a much different place now from where it has been, and I don't believe it will easily regain upside momentum. We should see individual stocks leading, and good stock-picking will be rewarded, but market players will not be bailed out as easily now as they have been in the past.
The good news about is that the recent shakeup is creating new opportunities. We will have to work harder to find the best stocks, but effective trading will be rewarded while passive investors will have a much more difficult time.
The market is setting up for some positive action to start the day -- but, after the last couple sessions, I don't expect the dip-buyers to be very confident. It is going to take some time to repair the damage that has been done to this market. I'll be looking to put money to work, but I will be very selective.