The good news is that the indices bounced back from the morning lows. The bad news is that they didn't have enough juice to go green. Breadth did improve nicely from the 2-to-1 negative reading we had this morning, but it was still 2250 to 3350 at the close.
The bullish spin on this market is that the bears couldn't gain any traction. The bearish spin is that the bulls can't gain any steam. It is a stalemate right now, which can be viewed as healthy consolidation by the bulls or stalling behavior by the bears. We have some earnings reports coming up to liven things up, but it really is a market without an edge right now. Weakness is bought and strength is faded, and we end up with little movement. With so little going on, the earnings reports are going to be the main focus for traders.
Netflix's (NFLX) report looks in line and guidance a bit soft, but it is up a little so far. It doesn't seem like a strong enough report, but there may be too many shorts betting against it. Chipotle Mexican Grill (CMG) looks like a great report again, and it is flying on the news. Hopefully this will help to shake things up a bit. Have a good evening. I'll see you tomorrow.
July 21, 2014 | 14:00 AM ET
Where's the Fear and Greed?
- The lack of energy is making this very tedious.
The indices are off their intraday lows, but it is painfully slow out there again.
The bears have a slight edge with breadth better than 2-to-1 negative, but there is enough underlying support to prevent any major damage. A few key names like Facebook (FB), Baidu (BIDU), Tesla (TSLA) and Netflix (NFLX) are acting OK, but pockets of momentum are almost nonexistent.
The buy-and-hold bulls will shrug and say that the market isn't so bad. But if you are trying to knock out a few trades it is extremely hard to be very active. In my book a good market is one that offers plenty of opportunities for trades and this one is giving us very little.
The saving grace for this market is that we do have a number of important earnings reports coming up, so that gives market players something to focus on. There isn't much worse than disinterest when it comes to trading as it results in slow and random movement. Greed and fear is what we need and there doesn't seem to be much of either right now.
We are upticking a bit as I write and I may pick at a few things into the close. But the lack of energy out there is making this very tedious.
July 21, 2014 | 10:42 AM ET
Speculative Interest Is Limited
- I don't see much choice but to sit and watch for now.
We had some slight dip-buying following the gap down open this morning, but the market is trading-heavy, with breadth better than two to one negative.
We have some minor strength in oil, gold and chips but biotechnology and solar energy are leading to the downside, which is a sign of limited speculative interest. Big cap momentum names are doing little. Google (GOOGL) isn't seeing follow-through but Netflix (NFLX) is anticipating a good report tonight.
The two favorite momentum stocks right now are Kandi Technologies (KNDI) and Glu Mobile (GLUU), which tells you how narrow the action is out there. Traders just aren't getting much going although. The best action seems to be in junk China names like E-commerce China Dangdang (DANG), Leju Holdings (LEJU), 58.com (WUBA), China Digital TV Holding (STV), etc., which looks more like a desperate attempt to create some action rather than strong speculative interest.
I've made a few small moves this morning but there just isn't enough energy to do much. We are rolling over again as I write, and I don't see much choice but to sit and watch for now. The breach of the early lows should trigger some stops.
July 21, 2014 | 7:53 AM EDT
Stay Nimble, My Friends
- It is a market mainly for smaller, quicker trades.
There are those who would misteach us that to stick in a rut is consistency and a virtue; and that to climb out of the rut is inconsistency and a vice -- Mark Twain
Over the last couple years, downside momentum has become extremely rare. According to Investors Business Daily, the last correction of more than 10% was way back in September-November 2012. Since that time, the market has consistently come right back after any sort of corrective action. If you have been overly defensive too quickly, you have ended up having to scramble to put capital back to work as the market shakes off whatever negatives caused the dip.
Last week the issues in Ukraine and Gaza gave the market good reason to sell off, but after just one day of struggles the buyers were back and pushing us higher. Good earnings from Google (GOOGL) and some banks helped matters, but the key is that market players just don't worry too much about sustained downside. They are so used to underlying support that they just never stand on the sidelines for long.
Although there has been good support, the market does still have some problems. The most notable has been the poor action in small-caps and the lack of strong leadership among momentum names. A few stocks like MSFT have been leading, but quality momentum leadership has been extremely thin recently.
In the past this weak bounce action and the severe international political issues would excite the bears, but they have little confidence given how often they have been burned when they start to press. To make things even more difficult for the bears we have a number of important earnings reports this week and it has seldom paid to bet against good reports.
The dilemma of the market is that we don't have much energy in either direction. The indices, particularly small-caps, have been under pressure, but there is enough underlying support to prevent a major breakdown. We aren't seeing extremely strong upside momentum, but there was enough buying interest on Friday to help shore up sentiment.
It just isn't a market that supports a high level of aggressiveness. A strong bias in either direction cannot be maintained for long and you will be burned when we are jerked around. It is a market mainly for smaller, quicker trades rather than grandiose market-timing calls.
The market doesn't seem overly concerned right now about Ukraine or Gaza, but those issues are likely to be used as reasons for selling into strength. The most interesting thing this week will be earnings from the likes of Apple (AAPL) and Microsoft (MSFT). They will set the tone and are very likely to give dip buyers confidence to jump in on any pullbacks.
We have some issues with small-caps and leading momentum sectors, especially biotechnology, but we also have OK earnings and signs of underlying momentum. We may not be flying higher, but we aren't breaking down either. While we can't be too negative, we shouldn't be overly optimistic either.
We'll work on picking off some trades and then go from there as things develop further.