Despite the ugly IBM (IBM) report, it was a solid day for the bulls although there wasn't much excitement. Breadth was very good with 4,100 gainers to 1,650 decliners and all major sectors in the green. The market gained strength, slowly and steadily, all day and finished at the highs, which is exactly what you want to see.
This is the sort of action that has morphed into the V-shape bounces in the past. We just keep slowly walking up, which isn't good for the folks sitting on the sidelines looking for a pullback before they deploy more capital. When there isn't a pullback, they inch in and that helps to give us the V-shaped bounce we've seen so often.
I still have substantial doubts about how easily we can pull off a straight-up recovery from here, but earnings will dictate what happens. Chipotle Mexican Grill (CMG) is out, and while it is a good report, it isn't the blow-out that we saw last quarter. The stock is down very slightly on the news.
Apple (AAPL) earnings just hit and are a bit ahead. iPad sales were slightly weak, but the stock is trading up slightly on the news. The numbers are good enough to squeeze the bears but not chase-worthy. Guidance is to come, but it doesn't look like it the bears are going to have much to work with.
Have a good evening. I'll see you tomorrow.
Oct. 20, 2014 | 1:44 PM EDT
- I see very little of technical interest right now.
The good news is that the IBM (IBM) debacle isn't hurting any of the indices other than the Dow Jones Industrial Average. The Nasdaq and small-caps are up over 0.5%. The bad news is that there isn't much movement out there.
Breadth is solidly positive but there isn't much, if any, chasing taking place. If the market was sitting at the highs it would be nice, solid basing action, but after the past week you have to wonder if this is a bounce that is starting to stall out. We definitely have not had the typical V-shaped action that's become almost routine.
There are two things preventing a more powerful V-shaped move. The first is that there has recently been so many failed bounces. The optimists that jumped on the first stab higher have been burned four times since this correction started in mid-September.
The other issue is that Google (GOOGL) and IBM have created some real concerns about earnings. If Apple (AAPL) doesn't come through tonight the mood is going to be a problem. Expectations for AAPL don't seem to be very high, but the company can no longer be counted on to blow out guidance like it did back in the Steve Jobs days.
Although trading styles vary greatly, I see very little of technical interest right now. There have been a bunch of oversold bounces into resistance on declining volume. We may keep on going but there are few obvious entry points if you are using traditional technical analysis.
Stay patient, be vigilant and we'll see how things develop.
Oct. 20, 2014 | 11:02 AM EDT
Keep Hunting for Opportunities
- But this action isn't conducive to aggressive buying.
The poor report from IBM (IBM) helped to kill the overnight bounce in futures but that was probably a good thing. A gap up open would have invited some profit taking by those who were looking for the standard Monday morning strength. Instead we have some action that entices dip buyers who want to inch back in but don't have the confidence yet to chase the market.
At a little less than 2-to-1 positive, breadth is solid and we are seeing decent strength in momentum stocks, biotechnology, retail and most other sectors except for oil. We are not seeing big moves but it is broad-based strength, which is more important.
The big issue now is whether the earnings reports from IBM, Google (GOOG, GOOGL) and others are going to keep speculative interest contained. Apple (AAPL) is going to be a big report but most of its new iPhone business won't show up until the next quarter.
I'm still lightly invested but a few things on my screen are working. Akorn (AKRX), my Stock of the Week, is a defensive play and is on the verge of a new high. There are only 34 stocks making new highs so that is the sort of action that attracts attention.
Exact Sciences (EXAS) and TG Therapeutics (TGTX) are other stocks on my radar today but I have been taking some profits on some positions, including RadNet (RDNT).
This action is OK but it isn't conducive to aggressive buying. Keep on hunting for opportunities but remain highly selective.
Oct. 20, 2014 | 7:05 AM EDT
Don't Stick Your Neck Out
- We can't know for sure if the market will now truly snap back.
Your worst enemy cannot harm you as much as your own unguarded thoughts. --Buddha
Is the worst over? Did the market's bounce action last week put in a solid low that will now hold?
No one knows for sure. We can be optimistic and start planning for an uptrend, and the market has been repairing some of the damage that has been done over the last couple weeks. But all we've witnessed at this point is an oversold bounce within a correction, so more work is needed. It would be a mistake to throw caution to the wind.
Over the last five years market players have grown used to the quick and easy recovery. We've seen a few corrections, but the market has consistently come roaring back as if nothing has occurred. Typically action by central bankers is what has helped produce the "V"-shape bounces, and it simply hasn't made sense to be too pessimistic as long as quantitative easing has provided support.
So the old adage about not fighting the Fed worked extremely well for an extremely long time -- but now things are shifting, even if the bulls don't want to admit it. While Europe is a mess and China is initiating some new policies, the Federal Reserve is slowly backing off as the U.S. economy continues to have fits-and-starts sort of improvement.
Even if the central bankers do stay accommodative, there are serious questions as to whether their actions are effective. Here we are, five years after the start of the Great Recession, and interest rates are still at historically low levels. All this means that "V"-shaped moves in the market -- and quick and easy recoveries -- are likely to be more problematic.
If the market does come roaring back again, we can adjust, but the risk of a level of trust is just too high. It is far more important that we continue to protect capital and stay highly selective with buys, rather than jump in and declare that a bottom has formed.
Declaring a bottom is great for pundits and gurus, but it is a very bad trading and investing approach. Many folks are sucked into this business of making the big call when they would be much better off staying patient and only reacting as things change. I'm hopeful that the market action will improve, but I'm not betting on it, especially since so many charts need to do further work in order to repair themselves. On Friday we saw just 80 stocks making highs. That's an improvement, but it is not evidence of a good uptrend.
Earnings releases will be the main catalyst in this market, and set to report tonight are Apple (AAPL), IBM (IBM) and Texas Instruments (TXN). So far we have seen some major disappointments in such key as Netflix (NFLX) and Google (GOOGL). The theme that is emerging is not a good one -- and Apple is likely to tell the story.
Futures have faded at the time of this writing, and Europe indices are now in the red. The U.S. market still has a positive open setting up, but there is a high level of nervousness.