It looked like another solid day for the market with the S&P 500 and Nasdaq climbing higher, but it wasn't nearly as strong as it looked. The indices benefited from strength in Apple (AAPL), Facebook (FB) and a few other big-cap names, as well as biotechnology names, while small-caps struggled and a number of reversals hit chips, technology and China-related names. It wasn't aggressive selling but there was quite a bit of slippage with many of the best stocks reversing quickly.
Good earnings reports are what prevented any real damage to the major indices, but we will have another test shortly when the FB numbers hit. The buyers found some safety in AAPL today, but it may not be as easy to find another place to park money with expectations high.
I did not like the action as far too many individual stocks acted poorly. There wasn't any lasting momentum and the indices were really quite deceptive. Probably the best thing that could happen is for the market to suffer a decent hit, but too many people are willing to park cash in Microsoft (MSFT) or AAPL. There is just no edge in the vast majority of individual stocks.
FB's upcoming numbers look nicely ahead, but the stock has run up and expectations are high so the immediate reaction is to sell the news. AAPL acted similarly last night, so I wouldn't be too quick to write off FB.
This market is becoming increasingly difficult, and the action today was a bit worrisome. Stay on your toes.
Have a good night I'll see you tomorrow.
July 23, 2014 | 1:10 PM EDT
Unattractive Under the Surface
- It is very easy to be caught in reversals and failed breakouts.
Under the surface the action isn't nearly as attractive. Semiconductors are being hit after having a good run and small-caps are losing their bounce again. Biotechnology is trading better due to Biogen Idec (BIIB) and Puma Biotech (PBYI), but Nasdaq breadth is now negative and there are way too many stocks reversing recent gains.
As I discussed in my opening post, we are no longer seeing the V-shaped action that the bulls enjoyed for so long. The action has become much more inconsistent and there are just as many, if not more, pockets of weakness as there are pockets of strength. It is very easy to be caught in reversals and failed breakouts.
I've been a net seller as some of my trades have reversed and trigged my stops. The action looks much worse to me than what the indices are saying and, ultimately, it is the action in the individual stocks that I'm holding that determines my market bias. Right now I'm not liking things too much.
Big-caps are keeping the bulls happy for now, but the action under the surface is flawed. I'm tightening up here and playing more defense.
July 23, 2014 | 10:49 AM ET
- There is good trading to be found in individual stocks.
The bears were looking to fade the slight gap-up open but aren't having much luck. Apple (AAPL) is trading much better after a tepid reaction to its earnings report last night. I suspect the algos are moving it rather than the report itself. It is likely that some bears jumped the gun on fading AAPL and are being squeezed. It is more about trading dynamics than fundamentals.
Microsoft (MSFT) faded a bit after ramping up last night, but Tesla (TSLA), Intuitive Surgical (ISRG) and a few other mo-mo names are helping the bullish cause. Most notable is the strength in biotechnology. The group has recouped all the losses created by Fed chief Janet Yellen's valuation comments. Biogen Idec (BIIB) and Puma Biotechnology (PBYI) are helping to drive up quite a few smaller biotech names.
As I mentioned yesterday, we continue to see strength in many China-related names, which is a sign of speculative health -- Leju Holdings (LEJU), Tarena International (TEDU) and Noah Holdings (NOAH) are on my radar screens. Spansion (CODE), my Stock of the Week, is strong on an upgrade from Jefferies and a price target of $28. It is bucking weakness in the chip sector.
Overall, there is good trading in individual stocks, but it is important to be selective. We are hitting the highs of the day and it is mainly due to MSFT and AAPL.
July 23, 2014 | 9:27 AM EDT
Apple No Longer the Hot Stock
- Stodgy old Microsoft has more impact on the market.
Success consists of going from failure to failure without loss of enthusiasm. --Winston Churchill
Apple's (AAPL) earnings report used to be the most important of the quarter. While it is still important it isn't nearly as exciting as it once was.
In the Steve Jobs days, the company would consistently lowball its estimates and blow out its numbers. These days it actually misses on revenues and has only a fraction of the growth it used to have. Of course the spilt and the large increase in the number of shares in the float make it move much less gingerly.
At the moment AAPL is trading up 13 cents and isn't having as much impact on the market as stodgy old Microsoft (MSFT). MSFT missed on EPS, but new management is generating some optimism. The stock is up around $1 in the early going.
The most interesting thing about the market lately is that it has a generally positive bias, but we are not seeing the V-shaped action that used to occur so frequently. Instead of going straight up in very streaky fashion, we are seeing an up-and-down pattern with little follow-through or momentum. We have quite a bit of technical distribution and underperformance by small-caps and many big-cap momentum names, but enough underlying support and dip buying to prevent any real selling pressure.
The earnings news is consistent with this pattern of choppy action. It is OK, but not generating any real wild action. The big report tonight is from Facebook (FB), which now may be the most important earning report of the season.
Are the days of the V-shaped bounce over? The action we have seen over the last couple weeks is typical of what we used to have in the pre-QE days. We aren't seeing the relenting bids and it actually looks like there is more human emotion at work as we have alternating positive and negative days.
With the S&P 500 back at all-time-high levels it is important to remember that markets at this juncture don't just suddenly fall apart and go straight down. They can be choppy and we can have pullbacks, but even if it the start of a topping process there is usually much stickiness to the upside.
I have absolutely no interest in trying to call a top. Rather than try to make market timing calls it is much more productive to focus on good trades in individual stocks. There has been some surprising good action in China stocks, which is a sign of speculative interest and overall breadth was quite good, which is an indication that small-caps may be regaining their footing.
Early indications are flat, but sentiment is positive and traders are looking for action. I expect to see Google (GOOGL) support once again.