The market suffered some shaky action last week but, has been typical, the bears were unable to press their advantage. There was some aggressive selling early in the day as early strength was sold but the buyers fought back and managed to close the indices well off the lows. This late day buying is preventing the market from undergoing a significant shift in price action.
This week it will be the reaction to earnings news that determines where the indices are heading. There are a slew of reports with Facebook (FB) , Amazon (AMZN) and Tesla (TSLA) likely to attract the most attention. So far this quarter there has been generally good reactions to reports from the banks and Netflix (NFLX) shrugged off what was viewed by some as a weak report.
This week we should see a clearer theme develop as the earnings reports hit. The bears have been anticipating weaker earnings this quarter but the more important issue is 'anticipation'. Are those softer numbers already priced into this market? We will find out as the reports roll in this week.
There are some issues of concern in this market such as narrow leadership and relative weakness in more speculative stocks, especially small caps and biotechnology. Biotech was hit hard last week with the iShares Nasdaq Biotechnology Fund ETF (IBB) losing nearly 6% recently.
There have been other pockets of weakness in cloud stocks and some high momentum names. There have been more pockets of weakness than strength lately and that is definitely a warning sign that must be watched as earning start to hit. Action in individual stocks are always your best indicator of overall market health. I discuss this and some of the other warning signs of market tops in this article that was posted over the holiday weekend.
I am maintaining a bullish bias but I have concerns about this market and will stay very vigilant and tighten up some of my stops. I want to see better stock picking and stronger momentum in individual stocks. The market has been challenging lately as volume has been low and there is quite a bit of chop. The pockets of weakness are notable and the lack of broad leadership worrisome.
The bulls still have the advantage but this is an important week for the market as we deal with significant earnings news. If a shift is coming there will be some potential catalysts to watch carefully.