Apple (AAPL) and a few other "small" names who reported earnings between last night and this morning provided a nice bounce for the major indices. Unfortunately, while many names that reported have held their gains, the underlying action is much weaker and much redder. It's always nice when the company with the largest market cap on the planet is up 8%, but it can be misleading when looking at the broader market. By getting caught up in all the Apple chatter, one might miss the continued carnage in oil or the action in the banks across the pond. A big stock? Absolutely. The biggest. But the only stock? Not by a long shot and Apple, alone, won't save the market, at least not for more than a few hours.
The large decline in European bank stocks over the last three to six months has been rather sneaky. I hadn't really noticed until looking closer this morning. Deutsche Bank (DB) is down nearly 10% on the quarter, joined by Banco Bilbao Vizcaya Argentaria (BBVA), Banco Santander (SAN), Credit Suisse (CS) and the Bank of Ireland (IRE), which are all down close to or more than 20%. Down only 7%, HSBC Holdings (HSBC) doesn't look so bad, but that's still a rough last three months. Only Royal Bank of Scotland (RBS) and Barclays (BCS) are truly holding steady.
One has to look toward South America or India to find the better-performing international names. It looks like HDFC (HDB) in India is one you have to own on the international side of things. Even Japanese banks are greatly underperforming. I do think the big European names will come back in the second half of the year after the euro finds some footing and I'll be interesting in trying to buy some of the above-mentioned names if the euro approaches par, which I still believe it will.
We have our own carnage in the U.S. in the energy sector. Outside of refiners and maybe steel, if you opt to include them in the energy group, there is simply nothing working.
I've been waiting for the United States Natural Gas ETF (UNG) to hit the $14 area to buy. It has been a great buy in the low $14s, if you are willing to sell the bounces. I'm having some concerns with that level, though, as we keep testing it and the bounces are getting weaker. If the $14 area fails, then we are looking at another 10% clip, in my view, maybe 15%, before we find another bottom. That would spell short-term troubles, when paired with oil, for names such as Apache (APA), Devon Energy (DVN), EOG Resources (EOG), Ultra Petroleum (UPL), Southwestern Energy (SWN), etc. More than just trouble, however, the smaller exploration and production (E&P) names still just trying to hang on, would suffer a double whammy. We'd either need to see some quick consolidation (big guys buying little guys) or a few bankruptcy filings to get a lasting bottom.
After a nice bounce, we're trailing back down and trading violently. This is the trait of a bear market, not a bull market or even a sector in recovery, so continue to use small sizes, limited risk and caution in the energy space or when trading the European banks.