A number of good earnings reports and some dovish comments from central bankers in Europe provided some rocket fuel for the indices, but under the surface there was some wacky action.
Leadership was primarily in stodgy names like McDonald's (MCD), Microsoft (MSFT) and General Electric (GE). Momentum stocks did fairly well, with Facebook (FB), Amazon (AMZN) and a few others helping the bullish cause, but it was big-cap stocks that normally don't lead that were the driving force. (General Electric is part of TheStreet's Dividend Stock Advisor portfolio. Amazon is part of the Growth Seeker portfolio.)
That was a bit peculiar, but what made the day even stranger was some absolute carnage in a number of health care, drug and biotechnology names. Valeant (VRX) has turned into a wild trading vehicle, but in addition there were things like Enanta (ENTA), Community Health (CYH) and Cross Country Health Care (CCRN) that were slammed. American Express (AXP) added to the ugliness but was offset by eBay (EBAY) and a few others.
Overall, it was a winning day for the bulls as they took out some key overhead resistance and caught the bears flat-footed. You might think that after six years, more talk about quantitative easing would not be that big of a deal for the market, but you'd be wrong.
The nature of the leadership and the number of major disasters make this one very peculiar market, but there is no disputing the fact that the indices look pretty healthy. The hard part is finding vehicles for the ride.
We have some major earnings reports tonight from Google (GOOGL), Microsoft and Amazon, and the mood may shift completely once again, but the bulls get the benefit of the doubt for now. (Facebook and Google are part of TheStreet's Action Alerts PLUS portfolio.)
Have a good evening. I'll see you tomorrow.
Oct. 22, 2015 | 1:12 PM EDT
A Market Your Dad (or Grandpa) Would Love
- · Wall Street has returned to the 'Nifty Fifty' days.
Back in the 1960s and '70s there was a group of stocks called the "Nifty Fifty." They were large-cap companies listed on the New York Stock Exchange that players saw as solid, long-term buy-and-hold investments.
A number of them are still very high-profile names, including General Electric (GE), IBM (IBM), Johnson & Johnson (JNJ) and McDonald's (MCD). But others like Avon Products, Polaroid and SS Kresge have either died or been reincarnated in other forms.
Well, the action on the screens today looks a lot like the Nifty Fifty era. Our leadership is coming from names like MCD, GM, GE, Altria (MO) and Microsoft (MSFT). Money is flowing into big conservative names and players are abandoning the speculative stuff -- especially biotech.
The folks that are putting money to work like the idea of lower risk. The central bankers have made it clear that they're sticking around with their dovish policy. So, why not plow into something like MSFT, which might return something more than the 0% interest you can receive on cash balances?
Markets are typically led by growth names like Apple (AAPL) and Alphabet (GOOG, GOOGL), so this action has a different feel to it and has confused many traders. Chasing these conservative names simply hasn't been the path to outperformance very often in the last six years.
But we have classic "central-banker action" out there today, with the indices ramping steadily higher all session. That's forcing players to chase just to put money to work, and that's exactly what they are doing.
The nature of the market's leadership is different, but that's a good thing for the indices because these stocks are all heavyweights.
This is the sort of market action that was common in our parents' day. The issue now is whether this is the beginning of a new market pattern or just a temporary aberration in a world of endless central-bank liquidity.
It feels a bit frothy out there, but there are clearly quite a few underinvested folks who are anxious to put cash to work.
Oct. 22, 2015 | 10:46 AM EDT
Earnings and Draghi Inspire Optimism
- Yesterday's close was the perfect setup for a sudden turn this morning.
Promises of more quantitative easing from European Central Bank President Mario Draghi coupled with some of the best earnings of the quarter have things chugging along this morning. McDonald's (MCD), Caterpillar (CAT), eBay (EBAY), Citrix Systems (CTXS), Proofpoint (PFPT) and several others are raising the level of optimism. The fact that things turned quite gloomy at the close yesterday was the perfect setup for a sudden turn this morning.
Biotechnology looked ugly again this morning but has turned around and semiconductors and oil are leading again. Homebuilders and drugs are lagging but the FANG names are very hot and breadth is very strong as it approaches four-to-one positive.
As I discussed in my opening post, the long list of negatives that the bears have been talking about are rendered irrelevant by the central bankers. In fact, the longer the list, the more dovish the bankers and that is still the drug of choice of this market.
I've been trading the volatility in Relypsa (RLYP) this morning and am adding to my position in Facebook (FB). I'm looking for FB to finally hold the $100 level in front of its report next week.
I still am having a very hard time putting cash to work but at least this action will help to give us some better technical setups.
The market loves to love the central bankers and that is what is what it is all about today.
Oct. 22, 2015 | 6:35 AM EDT
Markets Are Counting on Central Banks
- Expectations of dovishness prevent more downside.
"Happiness is not the absence of problems. It's the ability to deal with them".
Over the past week, the market has been struggling to make further progress. There continues to be support where it is needed, but the bulls are growing tired and gave in to some of the pressure yesterday.
The biggest obstacle for the bulls is that there is a steady flow of bad news. Earnings season has been generally poor, with names like Chipotle (CMG) and IBM (IBM) disappointing the market, but a few big cap names such as Dividend Stock Advisor portfolio name General Electric (GE) and General Motors (GM) have helped to hold up the indices and cover up underlying weakness. Tonight we have reports from two of the four FANG names, Growth Seeker portfolio name Amazon.com (AMZN) and Action Alerts PLUS holding Alphabet (GOOGL), which will be extremely important in determining the health of big cap momentum names.
Earnings are not the only issue. The biotechnology sector, which led the market for a couple years, has turned into a complete disaster. We have renewed weakness in China and problems with commodity and oil-related names again. China bounced last night, but economic reports around the world are less than stellar.
So what is holding up the market and preventing a deeper correction? It is our old friends, the central bankers. In the U.S., the Fed is on hold. No one expects a rate hike at next week's FOMC meeting. The People's Bank of China is supposedly kicking around more ideas for stimulus. In Europe, it is anticipated the Mario Draghi will indicate that the European Central Bank is ready to expand its quantitative easing program if necessary.
Market players are counting on central bankers to make the right dovish moves needed to prop up the market. The timing is uncertain, but that anticipation is what prevents any real downside momentum from building. The central bankers have been out there for six years and they are still out there.
Unfortunately, after this long the central bankers are no longer the driving force they once were. They are now just providing support, rather than serving as a catalyst to drive the equity markets even higher. They are still a potent force, but they are simply holding us up rather than giving buyers a compelling reason to drive the market higher.
This dynamic is what is making the market so difficult for many folks right now. Stocks are holding up, and we even have dip buying interest, but we aren't gaining strong momentum. If you are chasing stocks, you are not seeing much follow through. Yesterday we had about 130 stocks making new 12-month highs, which is pretty tepid for a market that has been rallying for over three weeks.
Overall, the market is in OK shape, technically. It is holding up fairly well and is seeing some nervousness, but the big problem is that putting money to work is extremely difficult. Traders that try to bottom-fish groups like oil or biotechnology are having a very difficult time. The momentum names are not attracting aggressive chasers. Small caps and speculative names are simply not offering good opportunities right now.
We are set for a slight bounce at the open, but upside progress is going to be a battle and putting cash to work will be very challenging. It is not a bad market, but it is not an easy one to navigate.