The indices have been doing a good job recently of covering up underlying weakness in the market and that is continuing to some extent today. The Russell 2000 ETF (IWM) is trading in positive territory yet breadth is running 24-41 negative. There is a little over 100 new highs and just about the same number of new lows.
I've been complaining about the sloppiness of the trading recently and that is continuing today. The FAANG names are lagging again with the exception of Apple (AAPL) ; pockets of momentum are very sparse. I'm having some luck with small cap oil plans like W&T Offshore (WTI) and Contango Oil and Gas (MCF) but it is necessary to be very selective.
The problem for traders in this market right now is that there just isn't sustained follow through. There are some positive moves but the strength quickly rotates elsewhere and gains can turn to losses. If you aren't willing to hold through increased volatility you are likely to suffer some fast stop outs.
Earnings continue tonight with Microsoft (MSFT) which will be of particular importance to the technology sector.
Many market players were looking at Nucor (NUE) for some insight into what is going on with tariffs, particularly in the steel sector. NUE earned $2.13 in the second quarter which was a few pennies ahead of estimates and reported inline revenues. The companies third quarter outlook was positive with the likelihood of margin expansion. It appears that the company believes it will continue to benefit from tariffs on foreign steel.
Cyclical stocks like NUE rarely have high PE ratios and that is the case here. NUE has a trailing PE of 14 and that is likely to fall even further as the company is expected to grow earnings in 2018 by 104% to $7.30 before a decline in 2019.
Technically the stock is in the middle of a wide trading range and isn't very compelling either long or short. The market is clearly uncertain about the longer term impact of steel tariffs and that is leaving NUE stuck in a trading range.
(Apple, Microsoft and Nucor are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL, MSFT or NUE? Learn more now.)
