As we move into earning season the most dominate theme of the market so far is inconsistency. There has been action such as the banks jumping off their lows following their earnings reports and the partial recovery of Netflix (NFLX) after a sharp drop on its subscriber miss, but the overall market has been choppy and the momentum inconsistent despite the fact that the Nasdaq 100 (QQQ) is hitting new all-time highs.
A few weeks ago, small caps were outperforming while the major indices were doing little. It was a good market for stock pickers as there were quite a few pockets of momentum. That has shifted in the past 10 days or so and smaller cap have been underperforming while the bigger cap names have been helping the indices. Financials in particular have been a boost.
This inconsistent and rotational action is making it tricky for traders. On Monday the internal action of the market looked quite weak as small caps dragged and there really was no good sector performance except financials. Yesterday, despite the NFLX problems, the market saw broad strength with groups like biotechnology and oil suddenly perking up after some recent struggles.
While the general tone of trading is positive, it is not consistent and is challenging for trend-followers that don't see sustained momentum. The stocks that look the best one day are not seeing continuation and the new leaders are often those that looked quite poor the day before.
There is no reason to be unduly bearish because of the inconsistency. The overall trend is positive, Fed Chairman Powell gave the market a good boost and the trade war issue seems to be on hold once again. Sentiment is good and market players don't seem to be overly euphoric. There is buying power on the sidelines because of the choppiness and that is a positive.
My game plan is to try to embrace this choppy action and not let it shake me out of good positions. I still have very high cash levels and am having some difficulty putting cash to work but I'll just keep on digging for some entries into good setups.
We have a flat start in the early going. Morgan Stanley (MS) has good numbers and is helping to keep the financials running. American Express (AXP) and Ebay (EBAY) report after the close tonight.