Good news from Intel (INTC), a takeover with a big premium and strength in oil-related names overcame the macro worries that have been bubbling up the last few days. There was a last-ditch effort to spread rumors about how the situation in Iraq is falling apart, but it wasn't enough to kill the market. The indices were mixed and breadth was around flat but there was enough buying interest to overcome early jitters.
Most notable today was how the good news from a few key stocks overcame the worry about international affairs. Market players were willing to stay focused on the good news and didn't use a very convenient excuse for further selling. The bears are ready to declare a market top, but even if they are right, the process is likely to play out for a while. This market is not willing to roll over too easily.
It seems like we just had the last one but the next FOMC interest-rate decision is coming up on Wednesday. That means we should have renewed talk about whether the economy is still weak enough to prevent any rush to raise interest rates.
The market is still a bit extended and the bears are likely to grow even more desperate if we don't have more energetic selling soon. On the other hand, this market is still full of underinvested bulls who are struggling to put capital to work. Fear of being left out of more upside seems to trump just about any negative the bears can drum up.
I'm expecting a choppy week, but there is still good stock-picking action if you are very selective.
Have a great weekend. I'll see you Monday.
June 13, 2014 | 10:05 AM EDT
- There's concern about headline risk over the weekend.
A takeover of OpenTable (OPEN) and strong guidance from Intel (INTC) was enough to cause a gap-up open, despite overseas weakness, but the buyers aren't very aggressive in the early going. There is concern about headline risk over the weekend as the situation in Iraq develops, and the selling of the last couple of days has caused some worry. If we close the gap and start testing yesterday's lows, another round of sell stops should trigger.
I'm looking for new buys but don't see anything of interest. Arista Networks (ANET), which I discussed on Monday, looks like the best momentum play, but overall the big-cap momentum stocks aren't doing much.
Overall, we are holding where we need to but we need better buying interest to draw in those on the sidelines. What moves this market best is fear of being left out, but that requires strength first. I'm cautious until I see aggressive buying.
June 13, 2014 | 7:45 AM EDT
Intel Is an Important Test Today
- If it loses its gains, the bears will be growling.
The difference between being a victim and a survivor is often a low level of situational awareness. --Barry Eisler
Over the last two days the market has suffered its worst selling in nearly a month. Volume picked up on Thursday and we experienced a technical distribution day.
Back in mid-May we had a similar two-day pullback, but we found support on the third day and then commenced a very strong V-shaped uptrend. The recent move has been downright frothy at times and sentiment has been highly complacent, which has the bears hoping that maybe contrary thinking might finally work.
The selling isn't all that surprising. We have had a good run and there are some profits to protect. We also have some good excuses for some selling as oil hits a nine-month high on the problems that are bubbling up in Iraq. In addition, recent economic reports, including weekly claims and retail sales, are lackluster. Europe celebrated the recent interest rate cuts by the ECB, but there is chattering that there are still substantial problems and that a robust recovery is still far down the road.
So, the bears have some fundamental ammunition and we are slightly overbought technically. That explains the softness, but the big question for us to consider is whether we should be thinking that a top is forming.
The current uptrend is still intact and it is premature to be overly bearish, but we do need to increase our vigilance. One very important test today will be the action in Intel (INTC) and semiconductors. INTC surprised the market after the close with increased guidance, due to strong sales of business computers. The stock is gapping up strongly.
Semiconductors is a group that often makes its biggest move near a market top. I'm not sure why that is the case, but when chips start showing unusual relative strength, many traders grow wary. INTC will be a very important indicator today. If it fails to hold on to its gain the bears will be growling quite loudly.
Despite the selling of the last two days, the underlying action hasn't been that bad. Oil, solar energy and precious metals are providing some trading opportunities and there are pockets of action in small-caps. The action back in March and April was much worse under the surface. That can still happen, but so far there is no mass exodus of speculative money. Traders are still digging for action and aren't looking to abandon the market.
Things were weak in Europe overnight mostly on concerns about Iraq, but INTC is helping early indications in the US. Stay vigilant. We are at an important juncture.