The poor action we've seen over the past couple of weeks is continuing Monday -- but once again, the major indices (which are basically flat) are doing a good job of masking this.
The main problem right now is the FAANGs. They've been hit hard as the narrative builds that this once-invincible group of stocks' best days are coming to an end (as always happens).
With both Facebook (FB) and Netflix (NFLX) posting poor reports, the brainless buying of the FAANGs is no longer such as easy money-maker. In fact, the FAANG's weakness Monday has the Nasdaq 100 ETF (QQQ) down around 1% even as the Dow industrials are essentially unchanged.
Yes, breadth is running positive with about 3,600 gainers to 2,975 decliners. But a much better indicator of the market's lack of momentum is the ratio of new 52-week highs to new 52-week lows. There are about 50 new highs on the market as I write this vs. more than 75 new lows. That illustrates how little chasing is going on.
The action in Caterpillar (CAT) is a good example of this. The company posted in-line revenues and a solid beat of 23 cents in earnings per share before the bell.
Management also raised guidance for its next fiscal year to $11 to 12 of EPS vs. a previously expected $10.25 to $11.25. That's a nice boost, and Caterpillar's current price-to-earnings ratio of just 14 isn't bad, even for something as cyclical as CAT.
The problem is that Caterpillar's chart is still unattractive, as the stock's current price of about $144 as I write this remains below both the name's 50- and 200-day simple moving averages. The stock has some support down at $135, but there's also substantial technical overhead above.
Investors and traders were initially selling the stock despite Monday's earnings beat, but that stopped right at a gap on the chart created back in June on trade-war worries. Still, the initial "sell-the-news" action and Caterpillar's challenging chart suggest that this is a good time to stand aside and wait for the chart to develop further. CAT's attractive valuation isn't a good enough reason to buy at this point.
Overall, I continue to take a very defensive approach to the market right now. This is an environment where it's far more important to protect capital than it is to seek gains.
That said, there are a few things working on my screens right now, like Bank of America (BAC) , Solaris Oilfields (SOI) , CLPS (CLPS) , IntelStat (I) and Bloom Energy (BE) . But there's plenty that's not working as well. Until the price action improves I'll be monitoring the action and waiting patiently before making more buys.
