Although the senior indices are all within a stone's throw of recent highs there have been some negatives seeping into the action recently. The biggest concern is that it has been extremely dull with significant pockets of weakness and narrow pockets of strength.
Small-caps and some of the speculative groups such as biotechnology and cannabis have struggled. On Monday, oil outperformed and big-cap technology and FAANG names bounced well. The Innovator IBD 50 ETF (FFTY) was up 0.53% while the SPDR S&P 500 ETF (SPY) managed only a 0.10% gain.
It is particularly interesting to see NFLX trading so well after what looked like lackluster earnings last week. The stock is now on the verge of a breakout from its recent trading range, which bodes well as we head into some of the other significant large-cap technology reports.
Twitter (TWTR) earnings are out and there is a very positive response to better-than-expected growth in monthly users. The stocks is trading up more than 6%. Earnings came in at $0.37, which is $0.22 better than expectations, and revenues grew at an 18.3% pace, year to year. Guidance is in line. This is a very solid report and when combined with a good technical setup should attract plenty of attention.
My primary focus right now is to stay open minded and objective. It is very easy to see some of the recent flaws in the market and to jump to the conclusion that a market reversal is developing. Many market players have a strong tendency to root for poor action because they feel it will help them produce better relative performance. The way that active managers beat the market isn't by chasing strength in a strong market but by avoiding losses in a weak market.
While it is easy to dwell on the negatives, there was some good action in individual stocks Monday and the outperformance by big-cap growth was notable. If there are several positive reactions to earnings news, the technical conditions are supportive of another leg higher.
I don't know what the market is going to do next. However, I can see how more upside is possible and how the bears might find themselves leaning too far in the wrong direction again. There are reasons to be cautious, but this very dull action recently is more supportive of upside than downside.
There are some problems with this market, but I see some good reasons to be positive and am going to give the bulls a chance to prove themselves.