"Somewhere men are laughing, and somewhere children shout;
but there is no joy in Mudville - mighty Casey has struck out."
-- Casey at the Bat buy Ernest Thayer
After dismal action on Tuesday, the market needed some good earnings news to turn back up and improve the mood. Mighty Apple (AAPL) , a holding in the Action Alerts PLUS portfolio, was up to bat and failed to deliver. It may not have been a strike out, but the one cent earning beat and in-line revenues failed to excite investors. The stock is trading down a few dollars but, more importantly, the mood of the market continues to deteriorate.
While there have been a few winners this earnings season such as Netflix (NFLX) , PayPal (PYPL) and Microsoft (MFST) , it hasn't done much to move the overall market. The Nasdaq 100 has outperformed but the S&P500 has gone nowhere for months and small caps are showing signs of breaking key support levels.
The action on Tuesday provided some hints that problems are brewing. Once again, the bulls were incapable of building on positives and the action in many individual stocks was worse than the action in the indices. Stock picking has been challenging for a while, but it was even worse yesterday as many small caps lost support and the pockets of momentum dried up.
Over the last six years, market players have grown used to being saved when conditions start to look bad. Just in the past four months the indices have repeatedly found support and remained in a trading range. Anyone who was too bearish too fast ended up frustrated by the stubborn underlying support.
This time I'm a bit more worried, mainly because of the action in small caps. The Russell 2000 is barely holding support and the speculative action that supported many biotechnology and technology names has dried up. A rotation into oil and mining helped to offset that weakness and keep the indices in place, but that is now showing signs of deterioration.
The warning signs are under the surface and are evident in many individual stocks. The bulls will shrug that off and point to the strength in the Nasdaq 100. There is a rotation into some of the bigger cap names like Growth Seeker portfolio name Amazon (AMZN) and Alphabet (GOOGL) recently, but the disappointing reaction to Apple this morning is likely to spill over to this group.
Small caps look poor, big-cap technology is losing some of its momentum and the lack of progress by the indices for so long is taking a toll on many market players. This trading range is becoming increasingly tedious and it is difficult to see how much upside progress can be made unless there is a breakdown and shakeout first.
Although it was trading range action, the weakness yesterday had a different feel to it and is making me much more cautious. If Apple doesn't pull itself together fairly fast, the danger that this trading range finally falls apart is quite high.