The best bounces always occur in poor markets. We have an example this morning as a few good earnings reports from Adobe (ADBE) , Johnson & Johnson (JNJ) and Morgan Stanley (MS) are bringing in some buyers who chase the good news. All three stocks have been beat up lately so they were in a good position for some upside even if the reports were not blowouts.
Bounces in downtrends tend to last longer than many think they will because market players want to believe the worst is over. They are relieved to see some upside and start putting money to work, but this creates conditions for a failed bounce that can lead to another leg down. When the bounce slows, profit taking ensues and then there is some worries about being trapped as the next stage of selling can set in.
Stay skeptical about this strength. It is possible we have seen the lows but the odds are low. The close today and the reaction to earnings tonight will give us a better idea of the overall market mood.
Netflix (NFLX) is the big report tonight. This is a battleground stock that has made big moves in both directions on earnings in the past. Currently the chart doesn't look very optimistic as there have been quite a few skeptical comments from analysts.
Netflix earnings are a bet. There is no way to know what is going to happen on the report. If you want to trade the stock the risk would be lower if you wait until after the news and then react to the price movement. If you like slot machines then buy Netflix in front of its report. Just be aware it is a straight-up gamble.
I've been mainly focused on biotechnology names lately as it is a group that has corrected far more than most of the market already. Many of these names are washed out and are bouncing. Viking Therapeutics (VKTX) , for example, bounced this morning after drifting down for weeks. Sarepta (SRPT) came back to life and Flexion (FLXN) is turning up after bouncing around at $18. These are the sort of bottom fish patterns I look for but much of the market hasn't been as poor as the biotechnology sector so far. It will take more time for the rest of the market to set up.
(Johnson & Johnson is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells JNJ? Learn more now.)
