After frothy action on Monday, the market is much more mixed today. Breadth is running about 2700 gainers to 4300 losers. I'm seeing increased volatility in a number of small cap stocks on my screen and, for the second day in a row, the biotechnology sector is weak (IBB) . Biotechnology was one of the leading groups during the uptrend that started in October so it is notable that there is some roll in the group now.
There is an interesting downgrade of Apple (AAPL) today. An analyst at Atlantic Equities downgraded the stock to Underperform from Neutral and set a price target of $275. The rationale for the downgrade given is that Apple's 50% relative outperformance over the broad market has been driven entirely by multiple expansion.
Market players are obviously aware of the valuation issues but simply have not cared or have found ways to justify it. With the Fed producing so much cheap capital, it makes sense that the discount rate used to value stocks would decline but determining what is a 'fair' multiple or discount rate is not a question that can be answered with mathematical rigor.
At some point the market will start to care about multiples again but there are no signs of it yet in the price action.
The main thing holding up the market so far is strength in JP Morgan Chase (JPM) and Citigroup (C) following their reports. There is no 'sell the news' action there and some chasing as the banking sector is not nearly as stretched as some of the other sectors.
One group I'm watching more closely now is gold mining (GDX) . The miners have corrected sharply after the last December run-up and are not back near support levels. There was a bit too much positive speculation about miners having a strong 2020 but now that the hype has cooled the group is in position to set up for another run. SSR Mining (SSRM) and Barrick Gold (GOLD) are two names I'm watching.
(Apple, JP Morgan and Citigroup are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AAPL? Learn more now.)
