It looked like a quiet Friday for the indices as they held fairly steady after a big rally to start the week, but there were some ominous signs under the surface.
Most significantly, extremely strong earnings reports from Alphabet (GOOGL) and Amazon (AMZN) failed to trigger any momentum in the broad market. The two stocks are leaders but they didn't have any followers. When good news like this fails to produce a positive response, it is time for increased caution. (Alphabet is part of TheStreet's Action Alerts PLUS portfolio.)
Another issue today was the very poor action in semiconductors. This sector has a history of topping out at market turns. The big problem today was the poor response to earnings from Intel INTC, but that was not the only stock in the group to reverse. Skyworks (SWKS) , KLA-Tencor (KLAC) and Qorvo (QRVO) also had poor days. Intel earnings have marked turning points in the past and the reversal in that stock today is another reason to be cautious.
A third problem is the poor relative performance in small-caps. Breadth was solidly negative and the Russell 2000 ETF (IWM) gave back a big chunk of this week's gains. This weakness illustrates a lack of speculative interest. Instead of being motivated by the good news in big-caps, market players were inclined to dump the higher-risk small-caps.
If you look at the charts of the major indices, there isn't much to be worried about. All we are seeing is some consolidation after the best two-day move of the year. Support levels are holding and volume isn't very heavy.
But the indices are masking some troubling action and it caused me to do some selling today and to initiate an index short. The uptrend is still in place but when chips reverse and the market can't do anything on some major earnings news, it is time for increased caution.
Have a great weekend. I'll see you on Monday.