If you looked through individual charts today, you wouldn't have much of a clue that the indices were up so much. Breadth was fairly tepid for such a strong day. Obviously, the move in mega-caps such as Microsoft (MSFT), Google (GOOGL) and Amazon (AMZN) is what drove the actions. (Amazon is part of TheStreet's Growth Seeker portfolio.)
Normally, these big-cap stocks have coattails that drag along other stocks, but that wasn't the case today. While the semiconductor sector did benefit from technology strength, it was biotechnology, drugs and medical that were the strongest sectors. Oil, gold and commodities lagged.
In addition to being narrow, there were a surprising number of blowups as well. Big names such as Skechers (SKX), Target (TGT), VF Corp. (VFC) and Whirlpool (WHR) all took substantial hits. The retail sector was particularly atrocious, which seems to be due to the feeling that AMZN is taking business from everyone. (Google and Target are part of TheStreet's Action Alerts PLUS portfolio. VF Corp. is part of the Trifecta Stocks portfolio.)
To put it in simple terms, it is a very narrow market that is being led by a few big-cap technology names. That isn't too unusual. The big issue is whether we broaden out and see other stocks join the party, or does it stay narrow as the hot money chases the most liquid names. Often we will see the index ETFs lead in this sort of market, since they are the easiest thing for big money to buy very fast. There is no need to bother with trying to find the best vehicle when they are what is moving the indices anyway.
Technically, the indices are a bit extended, but we have hurdled some important technical levels and backing and filling would be a great setup for another leg higher. There are lots of folks who will feel anxiety if the market holds and they don't put more money to work. We have some decent support and it would be a mistake to expect the market to suddenly fall apart.
We have another pile of earnings reports next week but, in addition, we also have the FOMC interest rate decision. While no one is expecting a rate hike, you can be sure the chatter about the timing of a liftoff will grow very load.
Have a great weekend. I'll see you on Monday.
Oct. 23, 2015 | 11:25 AM EDT
Early Market Euphoria Has Cooled Off
- But there are a lot of dip buyers out there.
Although the indices still have some good-sized gains, the early euphoria has cooled off quickly. The stocks that gapped up on earnings season are slowly fading and the S&P 500 ETF (SPY) is working to hold on to the intraday lows.
Breadth is running better than 2-to-1 positive and bounces in biotechnology and pharmaceutics are helping sentiment. There is broad strength out there, but chasing is not working. If you bought this open, you are down on the day.
Although the buyers may not be willing to chase, this is the sort of action that creates a very big pool of dip buyers. They want in but they don't want to be the person who top ticks the action. Google (GOOGL) and Amazon (AMZN) are going to find some good support, but there is no easy way to determine exactly where that will be. We simply have to watch and see how the charts develop from here. If you aren't in, there will be plenty of opportunities to build positions if you are so inclined. (Google is part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
I probably should have flipped more inventory into this open than I did, but my positions simply aren't large enough to do much incremental trading. Like many others, my trading has been a bit less aggressive than usual lately.
The most notable characteristic of this market the last couple of days is the number of huge gaps in both directions. We have GOOGL, AMZN and Microsoft (MSFT) on the upside. On the downside we have the Valeant (VRX) debacle and some other massive blowups, such as Skechers (SKX) and Stericycle (SRCL). There are always a few stocks that surprise folks, but the number that are making very big moves right now is much higher than usual.
Although we aren't seeing much intraday momentum, the good news is that this sort of action tends to lead to better opportunities. We don't simply fall apart and go straight down after the amount of positive news we have seen. The key is to wait for support levels to show themselves and then go to work.
Oct. 23, 2015 | 7:12 AM EDT
I Would Not Chase This Rocket-Ship Open
- · Act incrementally and you'll catch some momentum.
"Everybody seeks happiness! Not me, though! That's the difference between me and the rest of the world! Happiness isn't good enough for me! I demand euphoria!"
-- Bill Watterson, "Calvin and Hobbes"
Expectations for third quarter earnings results have been quite low. No one was expecting very good numbers, and so far that had been generally true. The low expectations have prevented a selloff as we digested some weak reports from the likes of American Express (AXP) and International Business Machines (IBM).
This morning the market is downright euphoric over strong earnings reports from Action Alerts PLUS portfolio holding Alphabet (GOOGL), Growth Seeker portfolio name Amazon.com (AMZN), Microsoft (MSFT), AT&T (T) and several others. These are not just slightly positive reports. They are solid beats, and we are seeing big gaps to the upside this morning.
Yesterday, the market had gained momentum on optimism about more quantitative easing. Mario Draghi, the head of ECB, indicated that he was ready, willing and able to extend the flow of cheap capital. The market has already been comforted by the fact the FOMC is not going to raise rates at its meeting next week.
The end result is that we have a combination of central banker support and good earnings. It is rocket fuel for the market, and is producing yet another V-shaped move.
Many market players were convinced that the days of V-shaped moves were behind us. The obvious inability of quantitative easing to boost the economy and the likelihood of some interest rate hikes had changed the character of the market action starting in mid-August. Many believed that our six year long market uptrend had come to an end.
Unfortunately for the bears, that pessimism has helped to set up this blast higher. It is not just the bears that are out of position. Once again we have legions of underinvested bulls that are desperate to put cash to work. This market has not been an easy one to navigate.
Yesterday was a good example of how chaotic the action has been under the surface. Health care names were crushed, and biotechnology and drug names continued their ugly downtrend. Leadership was in unlikely stodgy names like McDonald's (MCD), Dividend Stock Advisor portfolio holding General Electric (GE) and General Motors (GM). Even the FANG names were trading in somewhat lackluster fashion.
The big issue for us now is trying to catch a ride on this rocket ship open. Do we chase a giant gap up open? You can bet the bears will be babbling about "blow off tops," but we are cutting through more technical overhead and are fast approaching the levels we hit in August, before the ugly correction took hold.
My game plan is to not chase the open, but to look for entry points after the first hour or when things have calmed down a little. Markets that move like this don't suddenly reverse and go back down. We already were seeing some stickiness to the upside and now there is even more reason for there to be underlying support.
Finding entries isn't going to be easy. If you want in, you'll have to be ready to chase things, but if you act incrementally you should be able to catch some of the momentum.