The market produced a sizable bounce on Tuesday, but the primary issue now is whether it is bottoming action or just a routine oversold bounce that will fail and lead to more struggles.
The bounce was largely the function of excessive negativity. It was helped by a drop in oil and commodity prices, while bonds continued their descent as yields keep trending higher. Breadth was good, but volume was mediocre, and the pockets of strong momentum were very narrow.
The bulls point to a few retailers such as Costco (COST) and Target (TGT) and strength in growth stocks as exhibited by Ark Innovation ETF (ARKK) . However, the vast majority of charts still need much work before they form solid bases and better technical patterns. It is likely a mistake to grow too bullish too quickly, even though the bounces on Tuesday were a relief.
An added complexity is earnings season. Netflix (NFLX) , which was one of the leaders of the pandemic era "stay at home" theme, shocked the market with a loss of 200,000 subscribers and the likelihood of millions of more. The stock is off about 27% and is pushing down other streaming plays such as Roku (ROKU) , Disney (DIS) , and fuboTV (FUBO) .
On the other hand, IBM (IBM) is seeing a positive response on a slight beat due mainly to cloud revenues that were up 22%. That bodes well for some software plays as more reports roll in soon.
The big miss by Netflix is unlikely to have any broader market impact. It has been struggling for a while, and with names like Zoom Video (ZM) is seen as a theme that ended long ago. The stocks were so extended that they had to take giant hits before they were even thought of as potential "values."
Earnings tonight from Tesla (TSLA) will garner much attention and should provide some insight into supply-chain issues and the impact of Covid shutdowns in China. While there are very likely to be some other surprise reports similar to Netflix as earnings season continues, the issues that many companies are facing are no big secret.
Overall, the market is struggling to find support and continues to deal with some tremendously difficult macro issues. The most important issue right now is that bonds find some support. It is very likely that the Fed will be hiking by a half-point very soon, and there is a good argument that the market will start to find better support as actual rate hikes occur.
We have a mildly positive start despite Netflix, but buyers appear tentative.