The indices didn't do much today, but the underlying action was more negative than positive. What held things up was strength in some big-cap names like Priceline (PCLN), Microsoft (MSFT), Facebook (FB) and Google (GOOGL). That was canceled out to a great degree by weakness in Apple (AAPL), which has the largest market cap of any individual stock. All AAPL-related chip stocks were hit hard also as nervousness in front of tomorrow night's earnings news ramped up. (Facebook, Google and Apple are part of TheStreet's Action Alerts PLUS portfolio.)
While the heavyweight names battled to a standstill, the secondary stocks were just generally poor. Breadth was approaching 2-to-1 negative and there was very notable weakness in oil and commodity names. Chips also reversed hard, which trapped a few folks who were chasing technology after the strong earnings last Thursday.
If you had some of the big-cap names, the market looked pretty good, but otherwise it was rather tedious. There simply wasn't much opportunity out there. We are a bit extended and in need of a rest after the outright euphoria we saw last week, so it is hard to be too negative at this point. We needed a rest and are getting one.
Overall, it was a mixed market with a slightly negative bias. We are waiting for more earnings reports and news from the Fed. There isn't any compelling reason to buy and no pressing reason to sell. That doesn't make for much excitement, but it is the nature of the beast at times.
Have a good evening. I'll see you tomorrow.
Oct. 26, 2015 | 2:01 PM EDT
Big-Caps Make Some Noise
- · Almost nothing is going on outside a small group of names.
The indices are drifting and doing very little but, once again, there's relative strength in big-cap technology names. Priceline (PCLN), Alphabet (GOOGL), Facebook (FB) and others are again leading but aren't helping the indices that much because they are being offset by weakness in Apple (AAPL) and negative breadth.
It is a rather annoying market because there is almost nothing going on outside of the small group of big-cap names that are already extended. There aren't any pockets of momentum in small-caps. There's a little bounce in biotechnology but oil and semiconductors are being hit hard.
People want in this market but they are afraid to buy anything other than the obvious big-cap names. They hold up the indices and provide the impression that the action is much better than it really is, which causes more frustration among the laggards. A reinforcing circle keeps the same big-cap names leading, as that is the only way to produce any relative strength.
I'd like to make a few new buys but I'm not going to force it. The action is generally OK but individual stock picking is extremely challenging.
Oct. 26, 2015 | 10:41 AM EDT
Indices Are Not Telling the Real Story
- Until individual stocks start producing better charts the opportunities are limited.
Friday's euphoria has cooled off this morning but there is some underlying support and no big rush for the exits. Breadth is poor, at not quite two-to-one negative, with semiconductors, oil, homebuilders and biotechnology lagging. Precious metals are leading and momentum stocks are mixed.
Apple (AAPL) is a bit of a problem and a number of names that supply it with chips are under pressure today such as Avago Technologies (AVGO) and Cirrus Logic (CRUS). Apple reports earnings tomorrow night and there are obviously some worries about the level of iPhone sales. Other momentum names such as Alphabet (GOOGL, GOOG), Facebook (FB) and Microsoft (MSFT) are holding up well.
The big challenge of this market is that the indices don't do a very good job of reflecting what is really going on. We have a small group of big-cap names holding up the indices, and those are probably being driven by inflows into index ETFs. While there is bullishness, there isn't any strong themes in sectors or groups. If you want market exposure you might as well just buy an index because it is just large-caps that are moving anyway.
Although there isn't any reason to be overly bearish it is still extremely difficult to put new funds to work unless you pile into an index ETF or one of the handful of big-cap names that are already extended but still attracting money flow.
Until individual stocks start producing better charts the opportunities are limited. Right now it is either chase large-cap names or do nothing. I'm doing very little.
Oct. 26, 2015 | 7:41 AM EDT
We Need New Leadership in This Market
- New stocks need to step up to the role.
"Strive for continuous improvement, instead of perfection."
A combination of optimism about more stimulus from central bankers and strong earnings from key, big cap technology names sent the market sharply higher last week. The S&P500 managed to vault over its 200-day simple moving average for the first time since Aug. 19, leaving the highs of the year not too far off in the distance. Disputing the strength in the indices is a strange brew of action under the surface, and the skeptical bears still have plenty of arguments about the health of this market.
Although the People's Bank of China cut interest rates again, it was well anticipated and isn't generating much additional excitement. Some of the euphoria over more stimuli in Japan and Europe is cooling as well. The market loves the dovish central bankers, but the bears keep telling us that the low interest rate driver is old news for the market and it is not going to work as well unless we have some real improvement.
The FOMC meets this week and announces its interest rate decision on Wednesday afternoon. It is very well anticipated that there will be no hike at this meeting, but the big question will be whether there are hints about a forthcoming hike. Right now, the market believes that the likelihood is that "lift-off" won't occur until 2016, but the various Fed members keep making hawkish comments that are confusing the market. Unfortunately, the focus is going to be on the timing of the Fed interest rate decisions, which tends to confuse the markets because of the lack of clarity. We will be dancing around that issue all week.
While the indices are acting well, under the surface of the market there is quite a bit of confusion. The rally this past week was led more by a flow of money into index ETF as market players scrambled to put money to work quick in liquid assets. The good earnings news from Microsoft (MSFT), Action Alerts PLUS portfolio holding Alphabet (GOOGL) and Growth Seeker portfolio holding Amazon.com (AMZN) helped to drive the futures action even more.
What was particularly unusual last week was the high number of blow-ups: earnings reports like the ones from American Express (AXP), Skechers (SKX), and then issues in the medical sector that hit names like Valeant (VRX) and others. There are always a few landmines, but the number last week was extremely high.
The end result of the action last week is that we have a small group of big cap momentum names that are mostly extended now, and then a bunch of broken stocks, with little left in the middle. The leadership in the market right now is very clear, but it's narrow and it is already extended. What we need is for the action to broaden up and for some new stocks to take a leadership role.
We have earning this week from Apple (AAPL) and a slew of other companies, but there is not the same potential for reports to move the market like they did this past week. Apple is going to be of particular interest, as it impacts sentiment in momentum names.
Overall, we have bullish technical action and good momentum in the indices, but individual stock picking is extremely challenging. Market players are gravitating toward the big cap momentum names, but we need more than that for a healthy market.
We have some slight weakness in the early going, but Monday morning dip buyers are usually lurking.