After the poor action on Thursday, market players were hopeful that some good earnings, Amazon (AMZN) in particular, would turn the tide and start things rolling again. That hope was crushed with some very dismal action. We trended down slowly all day and breadth steadily eroded. Even AMZN was unable to find support after a huge upside gap. (Amazon is part of TheStreet's Growth Seeker portfolio.)
Gold bounced and there were a few stocks in the green after good earnings news, but biotechnology was a disaster as Biogen (BIIB), Esperion Therapeutics (ESPR) and a few other key names were hit hard. Chips, which looked pretty good yesterday, faded again and the big-caps that have been leading lately turned into a sea of red. New lows piled up and hit levels we haven't seen in quite a while.
The good news is that many individual stocks have already seen very deep corrections. As I've pointed out quite often lately, the indices simply have not done a good job of reflecting what is really going on in this market. The indices are still mostly intact but are suffering some stress fractures. There are some things holding up but the longer the underlying selling continues, the more likely they will begin to fall as well.
Any way you look at it, this action is poor. The great bulk of stocks have some technical issues and the leadership we've had isn't leading anything. This has been some of the worst action since January and there is no reason it can't continue to play out next week. We have plenty of earnings reports to come, but after the reaction we've had today, you have to wonder what it will take to boost this market.
I'd like to be more upbeat about this market, but there simply aren't many long opportunities right now. Maybe some things haven't broken down yet, but you have to be quite optimistic to believe they have much potential upside at this point.
Defense is the name of the game, but it has not been an easy tactic in this market, which seems to turn on a dime so often. Nonetheless, when the action is this poor there is little choice.
Have a great weekend. I'll see you on Monday.
July 24, 2015 | 11:01 AM EDT
Time to Get Creative
- · The bulls are still hanging on to pockets of good action.
After Thursday's poor action hopes were high that good earnings from Amazon (AMZN), Starbucks (SBUX) and a few others would turn the tide and put the market back on a positive trajectory, but it isn't happening.
The early positive action was mainly used to reduce positions. For example, Google (GOOGL) and Netflix (NFLX) were briefly positive but are now in the red. A poor report from Biogen (BIIB) is hurting our key momentum sector, biotech. That group struggled yesterday and is now seeing more downside as traders take a defensive stance.
Breadth is the big issue again. It is running nearly 2-to-1 negative but the momentum screens are doing better and are close to even.
One thing you don't hear much about is the high level of new lows. We now have more than 400 stocks hitting new 12-month lows while there are 50 or so making new highs. That is definitely not a very bullish picture, unless you are trying to catch a bottom.
The bulls are still hanging on to pockets of good action in Ambarella (AMBA) and Tesla (TSLA), but it has been narrow for a while and is becoming even narrower. You have to be creative to come up with a bullish spin on the current price action.
I've done nothing other than a few sales so far. I've been complaining about how difficult it has been to put money to work lately but that has been a good warning sign. If you can't find good place to put your cash, maybe it is a good idea not to be buying.
At the time of publication, Rev Shark was long FB, although positions may change at any time.
July 24, 2015 | 7:41 a.m. ET
The Few, the Proud, the High-Flying Big-Caps
- Names such as Amazon and Google are saving this market, but they aren't leading.
"Leadership is unlocking the potential to become better".
Earnings season usually produces an interesting theme. Sometimes it is "buy the bad news" or "sell the good news." This quarter the theme so far is blow-out earnings by leading high-beta, big-cap stocks. We've had huge upside gaps from Netflix (NFLX), Google (GOOGL), Chipotle Mexican Grill (CMG) and a couple others. Today Amazon (AMZN) joins the party with a move of nearly 20% following a solid beat and good guidance.
It isn't only AMZN's report that is being celebrated. Visa (V), Starbucks (SBUX), Skyworks Solutions (SWKS) and Juniper Networks (JNPR) are all trading up following solid report, and that is helping to cause a gap-up open in the indices.
After the poor action yesterday it looked like the bears might be gaining an advantage. But, as so often occurs, we have a sudden change in mood and the bears that were looking to press find themselves out of position once again. One theme that has been prevalent for a long time is that just as traders start to take a more defensive posture, the market will turn back up and leave them underinvested. This scenario causes dip buying and chasing and helps to provide good underlying support as well.
While the gap-up open this morning is helping to produce a good mood, we have to keep in mind that the earnings from GOOGL and NFLX were not enough to really generate sustained momentum. As I discussed the other day, the problem is that the leaders aren't leading. The good news in big-caps is helping those stocks and they drive the indices, but the underlying action in the market has been mediocre at best. We've had a run of days with negative breadth and there have been few good sector themes lately. It has been a handful of big-cap names that have saved this market, and we have that occurring again this morning.
If AMZN, V and SBUX can act as real leaders this market has good potential. What we need more than anything is broader strength. Some of the weakness in the market lately is the function of a huge meltdown in oil, precious metals, mining and all things commodity-related. We've had a giant increase in the number of stocks that have been making new 12-month lows because of the pressure on these groups.
The market has been able to ignore that weakness to a great degree because the indices just aren't reflecting it very well. The heavyweights in the indices have had relative strength and that is keeping them near highs.
That sort of bifurcated action isn't that big of a deal for traders, but what has been the difficulty is that the great bulk of stocks in the middle between the high-flying big-caps and the down-trending commodities are not acting that well. As I keep pointing out, the average stock in this market is already in a bear market. The vast majority of stocks are trading below key moving average support and the pockets of momentum are extremely narrow.
AMZN, GOOGL and NFLX grab the attention of the media, and that creates the impression that this market is acting quite well. That is deceptive. What we need are these stocks that are reporting good earnings to lead other stocks higher. Normally when you have a big gap up like we are seeing in AMZN, market players that are hesitant to chase will look for other names that have yet to move. This creates sympathetic buying and the market strength starts to spread.
GOOGL, CMG, NFLX and others helped the indices with their report, but they did not help to strength breadth. With the good reports overnight, that is what we need now to put this market on track. If AMZN doesn't help create a broader-based rally. we have some real problems and that is what we need to watch today.
We have a solid open on the way and the mood has improved quickly. Now we need some momentum and better breadth.