A little bounce into the close took some of the sting out of the action, but it still was a downright dismal day. August is known to be seasonally poor and market players looked like they were embracing that idea today.
What was most notable about the action was that several intraday bounce tries failed before a late spike finally took hold. The bulls focused on that late strength and the fact that we hadn't yet taken out any further support levels. We are still within the trading range that has been setting up since last Monday's lows.
The big question now is whether the bulls can regroup and generate some upside momentum again. The problem is that we just don't have many positive catalysts. Not only is seasonality an issue, but China is a mess, commodities continue to fall apart and we have jobs news on Friday that will be a major determinant in how quickly the Fed hikes rates. Earnings season is winding down, but that may actually be a positive as revenue has declined by over 3% on average from last year.
Technically, the indices have yet to break down, but that is not the case with a large group of individual stocks. There is plenty of poor action out there and it takes some spinning to put a positive face on the overall market. There is no reason to be a hero here with lots of new buys. Take it slow and make the market prove itself again.
Have a great evening. I'll see you tomorrow.
Aug. 3, 2015 | 1:37 PM EDT
Market's Attempts to Bounce Go Bust
- · No place to hide, and few pockets of momentum.
We have a change in character today as two bounce tries fizzed out and we are making new intraday lows. Breadth is really poor with more than two losers for each gainer. There really is no place to hide right now in stocks, and that is benefiting bonds.
Last week's bounce is looking like a failure as the S&P 500 is back below the 50-day simple moving average and the 200-day is in view. The iShares Russell 2000 ETF (IWM) has been lagging for a few weeks and it is very close to testing key support around $121.
There are a few odds and ends holding up, like Google (GOOGL), Adeptus Health (ADPT) and Fitbit (FIT), but if you are looking for pockets of momentum to trade, there isn't much more than those three. (Google is part of TheStreet's Action Alerts PLUS portfolio.)
When the market is acting like this, there is little choice but to get out of the way and protect capital. Too often, we simply let small positions ride and those losses can add up pretty quickly. Defensive can be quite frustrating at times, but it is like insurance. You will pay lots of premiums over the years, but there may come a time when you need it and you'll be happy you have it.
We'll see if support develops, but right now there are plenty of trapped bulls who would like to cut back. That makes upside much more difficult, especially when you already had a big bounce that is failing.
Aug. 3, 2015 | 10:51 AM EDT
Market Looking for Some Support
- · But there isn't any macro news likely to turn things back up right away.
There was some routine buying of the early weakness, which is pretty standard on a Monday morning, but the bounce is not holding up well. The markets are looking to retest early lows and underlying action is weak. Breadth is running 2,200 gainers to 3,100 losers and there isn't any good sector leadership. Biotechnology was trying but is now back to even when defensive group pharmaceuticals took the lead.
Oil and solar energy are being pummeled again and there is also weakness in chips, retail and homebuilders. Momentum stocks are mixed. Apple (AAPL) continues to struggle and the other recent big caps aren't doing anything of interest.
One bright spot is my Stock of the Week, Fitbit (FIT) which is trading in new high territory in front of its earnings report due out on Wednesday. While I don't like the long-term prospects of FIT due to the competition, for now, it is the darling of fitness trackers and market players are anticipating a strong quarter.
We are starting to lose more support as I write and I've taken stock of a few things. There just isn't good underlying support now and we are seeing some technical breakdowns. There is little choice but to take stops when they trigger and wait for things to find some support. This is not healthy action and there isn't any macro news likely to turn things back up right away.
Aug. 03, 2015 | 7:00 AM EDT
A Failed Bounce Is a High Risk
- Be ready to take stops if it occurs.
"If I ever completely lost my nervousness I would be frightened half to death."
Just when it looked like we were heading for trouble, the market managed an impressive four-day oversold bounce last week. We regained some key technical levels and some of the bulls were celebrating another V-shaped move. However, we reversed late on Friday and there is some nervousness as we kick off the new week.
While the move in the indices last week was impressive, there were problems with breadth, and key leadership was mixed. Biotechnology, which is our key leadership group, did bounce, but it underperformed the broader market. Action Alerts PLUS charity portfolio holding Apple (AAPL) was unable to find its footing and made a new post-earnings low. Other key momentum names, Google (GOOGL) and Facebook (FB) which are also part of Action Alerts PLUS and Growth Seeker portfolio holding Amazon.com (AMZN) did little as well.
Most of the strength last week came from second-tier stocks. Oil bounced early in the week, and there was strength in chips and defensive names. While the indices looked pretty healthy, the action in individual stocks was less so.
As we kick off the new week, we have a number of troubling headlines. China continues to be a problem, with poor economic news driving the market back down, despite desperate measures by governmental agencies to prop it up. The Greek market finally reopened and proceeded to plunge 23%, as pent up selling hit stocks. There was some good economic news in other areas of Europe and that is helping the tone.
One positive last week was increased confidence that the Fed would not be looking to raise rates in September. The consensus opinion is that rate hikes have been pushed back to at least December. That is going to be an issue again this week, with the very important July jobs report that is due on Friday.
We have more earnings to deal with, but most are secondary names now and there are other economic reports, such as ISM. The big issue is whether we are in danger of a failed bounce at this point, or can the bulls keep on pushing and move us back to recent highs?
The indices do have a V-ish look, but it is the underlying action that has been problematic. Individual stocks simply are not confirming the strength in the indices.
The issue is primarily in key leadership stocks. We need that underlying action to improve in order to have greater confidence in this market.
I don't want to sound too negative, as there were stocks working last week. It just requires that we be selective with stock picking, and be ready to move fast if this bounce falters. A failed bounce is a high risk, and we need to be mentally ready should it occur.
Despite some overseas negatives, it is very quiet so far this morning. We often tend to see support on Monday morning, and the first day of a new month often has a positive bias. Just make sure you keep a close watch on positions and are ready to take stops if things start to turn.