After a very difficult week for the market, emotions are running high and early indications are for a weak open. Asian markets were weak with Japan down 1.87%, but Europe is holding steady with Germany up and France down. Oil is up on concerns that there may be a move to sanction the Saudis due to the disappearance of a journalist and gold is acting like the safe haven it is supposed to be.
There is earnings news on tap with Bank of America Corp. (BAC) and Charles Schwab Corp. (SCHW) , but it is bonds that are moving financials lately and they are flat in the early going.
Tuesday night Netflix Inc. (NFLX) and IBM Corp. (IBM) kick off the nonfinancial reports, which should help shift some attention to individual stock picking. Stocks currently are moving in tandem on big-picture concerns, but we are starting to see more stock picking as quite a few stocks have been driven down to support levels and are starting to look like values.
The most important thing to keep in mind about this market is that many stocks, particularly small-caps, are already in a bear market and have undergone substantial corrections. The Russell 2000 ETF (IWM) has corrected for more than the Dow Jones Industrial Average (DJIA) and S&P 500.
Most notable, the percentage of stocks above their 40-day simple moving average of price had fallen to around 12% at the close last Friday. This is around the same level that was hit in February, when the great volatility unwind hit the market. Since the low in 2008 this number has been lower only six times, and each time it was for a very limited duration.
The biggest problem that traders face in this market isn't that many stocks are oversold, at support and in position for a bounce, but that the pressure on the big-caps keeps sentiment negative and prevents the bottom fishers from doing much. There are some great opportunities at the lows, but there is fear the continued pressure on the major indices will prevent buyers from jumping in.
I've been defensive for a while and have raised substantial cash. I'm more interested in finding new entries than in trying to manage existing positions. I'm looking for areas that might find some support and bounce.
One sector I'm watching carefully is gold, which spiked last Thursday and is showing signs of more momentum this morning. Gold has been in a long downtrend but finally may receive attention again as a safe haven. The strong dollar has been a major detriment, but that dynamic is weakening.
Many biotechnology names already have sold off to a much greater degree than the overall market and I've been looking in that sector for opportunities. We also should see more individual stocks perform better as their earnings reports start to hit.
The business media is intently focused on big-picture selling pressure, but we are moving to an environment that is favoring stock pickers as bargain hunters sort through the wreckage. With the media helping to create some fear there are some very interesting opportunities developing.
