The market had a couple of productive days this week after some panic and a big intraday reversal Tuesday. That produced a short-term bottom and we have been trending up since. There are still quite a few broken stocks, but big-caps like GE (GE) and McDonald's (MCD) have been driving the indices. Most impressive is the market's ability to shrug off negative reactions to reports from Google (GOOG, GOOGL), IBM (IBM) and Chipotle (CMG).
I'd feel better about this market if the DJIA and S&P 500 had corrected like the Nasdaq and iShares Russell 2000 (IWM), but it looks like the buyers are just too impatient for that to happen. Eventually, we'll have a day of reckoning when the DJIA has headline-making losses, but, apparently, we are not ready for that to happen yet.
Next week brings a slew of earnings reports, and we'll see if the forgiving mood today is the product of low expectations or the result of upbeat holiday trading. We had positive seasonality to assist us a bit this week, but that starts to weaken now.
What troubles me most is that the stocks I tend to favor, momentum and speculative small-caps, are still not acting very well. Those groups should lead in a good market; instead, money continues to shift into conservative names. Something has to change and I'm hoping it will be increased relative strength in momentum and small-cap stocks.
The long weekend couldn't come at a better time. Enjoy the holidays, eat a chocolate bunny or a matzo, and we'll hit 'em hard Monday.
April 17, 2014 | 1:23 PM EDT
Negatives Are Being Ignored
- The day before a holiday puts Wall Street in a good mood.
At midday, the market is holding up quite well despite the fact that Google (GOOG, GOOGL), IBM (IBM) and Chipotle (CMG) are all trading down after their earnings reports. The negatives are being ignored as fear of missing another V-shaped bounce takes hold.
The big difference this time is that we still don't have good leadership. Netflix (NFLX), Apple (AAPL) and Amazon (AMZN) are bouncing, but other than a few small oil plays there aren't many pockets of momentum. Most of the stocks on my screens are doing very little, which is an improvement over the downtrending action of the last few weeks. There's support in biotechnology, which has been the worst-performing group lately.
The S&P 500 is making new intraday highs, causing some squeezing, but with the long weekend beckoning, the ranks of traders are thinning fast. The market is doing what it needs to do to recover from the recent correction in many stocks, but the senior indices are still masking what is really going on under the surface. There are still a number of negatives, but the day before a holiday tends to put many folks in a good mood.
April 17, 2014 | 10:47 AM EDT
Signs of Underlying Support
- The action is actually good enough to feel a bit V-ish.
The market had good reason to sell off this morning. After poor earnings from Google (GOOG, GOOGL) and IBM (IBM), conditions were a bit oversold after a good bounce, and there's a long weekend coming up with headline risk about Ukraine and a sputtering economy in China. Nonetheless, the buyers were willing to step up and they have been actively buying the dips so far. I don't like breadth, which is running negative, and too many small-caps are still red. But there are obviously signs of underlying support, and that is a shift from earlier this week.
The action is actually good enough to feel a bit V-ish. I have serious doubts it will be as simple as it was in February, but the support we are seeing at the moment is what tended to produce those straight-up moves. However, with lots of earnings and a less-supportive Fed, I anticipate a high level of volatility and some traps for the bulls, who have become too confident in lopsided price action.
Despite the generally positive action, I'm still not putting much capital to work. I continue to believe FB will be a "go-to" name if momentum stocks find better support, but most of the small-caps aren't flying. Recent Shark Technical pick BioFuel Energy (BIOF) is doing very well, but I'm not very happy about the way I've traded it. I have a few other stocks on the radar, but I don't anticipate doing much until the close.
April 17, 2014 | 8:29 AM EDT
This Market Still Has Major Issues
- But market players seem to be in a good mood despite IBM and Google.
There were two ways to be happy: improve your reality, or lower your expectations. --Jodi Picoult
The market is trying to shrug off poor earnings reports from Google (GOOG, GOOGL) and IBM (IBM) and is doing a good job of it in the early going. Good reports from Morgan Stanley (MS), Goldman Sachs (GS) and PepsiCo (PEP) are helping, and everyone knows that IBM is a serial disappointer anyway. GOOG is a bit worrisome, but its impact is contained so far.
Another problem this morning is that Dow is up around 400 points in three days, so we are a bit extended and primed for "sell the news" action. The major indices look a bit V-ish but it sure hasn't felt that way under the surface. Momentum stocks like Facebook (FB), Tesla (TSLA), Amazon (AMZN) and others have barely bounced. There continues to be a big disconnect between what the media sees and what is really happening.
What the market really needs is for the Dow and S&P 500 to catch up with the Nasdaq to the downside. Until there is more consistent action between the indices, it is going to be very difficult for us to make a good, lasting low. The big problem is that too many people look at just the headline indices and that keeps sentiment too positive. We need a higher level of skepticism and doubt for the market to purge all of its recent excesses.
The GOOG report is another big hurdle as it has been a leader in the momentum sector. If GOOG can have such a lackluster report, then there are going to be worries about many other names in the group. Momentum stocks can't afford to have exceptional reports as their valuations are typically based on consistently exceeding expectations. GOOG is receiving some defense, but if it doesn't bounce back very quickly, it is going to be a drag on the entire momentum sector.
Earnings season is just starting and we'll have a slew of reports next week to shake things up. Hopefully, the market will focus on individual stock-picking and not allow a few names like IBM and GOOG to affect overall sentiment too much. IBM's poor report may actually be helpful if it takes some of the froth out of the Dow, and GOOG may be deemed a company-specific issue.
Despite the bounce the last few days, the market still has major issues. The folks who are celebrating the move in the Dow are obviously missing what is really going on with the average stock. There are just a few big-caps pushing the indices while momentum names, small-caps and others are languishing without any real recovery.
I see no reason to build longer-term positions. In fact, I'm inclined to sell down a few more things into strength. This market still has much work to do to regain its health, and the earnings news is not going to be very helpful.
It is a Thursday before a long weekend, so the action will be thin but likely will have a positive bias. It probably would be better if we opened softer, but market players seem to be in a good mood despite IBM and GOOG.