When markets are in bull mode you don’t see what we saw today. First of all, you don’t see the healthiest stocks, really any stocks for that matter, get annihilated on an earnings report. There is room to have bad news without getting crushed down. You are basically forgiven for getting it wrong. The very best stocks in particular are given a grace for at least one, if not multiple, bad reports. You can’t kill the best company’s in a bull market environment. Oracle Corp. (ORCL), one of those leaders, and a company that, basically, always reports good news, was pretty much taken out back and out down today. You just don’t see that in a bull market. Certainly not to the degree for which that stock was hurt. Well over 10%, and nothing on the candle stick to give it much hope for any appreciable upside in the coming weeks at least. It could be a lot longer than that. Based on how Oracle was received today, it takes a lot of the shine off of yesterday’s strong stock market move higher. The wrong type of action followed the day after. Oracle was terrible, and it took the Nasdaq down with it. Red flag number one.
When looking at markets, bull or bear, we have to look at how other stocks get affected by the missed earnings of a leading company. In a bull market, there is no damage done to anyone other than the reporting stock. The related stocks simply ignore the bad news and move higher over time. They don’t lose their bullish trends in place both in terms of its volume trends and price action. International Business Machines Corp. (IBM), the leader of all leaders, was annihilated on the Oracle miss. This just does not happen in a bull market. IBM was crushed on big volume below its critical 50-day exponential moving average, and did so with a huge gap in place now. This will make any attempt higher by the bulls very difficult to say the least. When you see leaders get affected by other stocks that miss earnings, this is a red flag that should at the very least, be respected. It may mean things will worsen without warning. It’s unclear but it’s simply not good news for the bulls.
Bifurcation. The inability of all the major indexes to perform well in concert. Once again, today, we saw the move away from froth stocks. When markets are healthy, really healthy, the risk factor is removed. People want froth, and anything that moves fast, even though valuations say they aren’t worth the price. It’s a pure momentum let’s-get-rich mentality. It works in bull markets. The stocks that deserve the least play get the most. P/E’s will fly higher, often reaching 100, or higher, but certainly P/E’s of 50, or more, are common place. Not the way it works in bear markets where it’s a risk off environment.
People in bear markets, or lateral markets, want nothing to do with high P/E’s. They want low P/E’s, and they want dividend paying company’s. They want safety. Simple as that. Not that they can’t fall. However, these stocks will fall slower, and deal with a bad environment much more easily. Right now, we continue to see the market hate froth. We continue to see the market desire low P/E stocks with dividends. Yet another red flag for down the road. The market is holding well, for now, but if this keeps up, you have to fear that things will move lower in time.
The market is all over the place, and when that happens, it takes the impatient players and makes them pay a very steep price for their inability to wait on the right set-up over time. It’s imperative to use patience when the market demands it. Right now, the market is most definitely demanding it. The whipsaw from day to day is so intense it makes you feel as if you have no sense of what’s going on when, in reality, it’s all part of a wide and loose triangle. These triangles are meant to fool the masses, so you can give up your hard earned dollars through emotional playing.
We all want to be involved 100% of the time. It’s more fun, and more interesting, that way, but that’s where the market acts like the house in Vegas. It depends on you acting emotionally, and in this game, that is the way it usually goes down. Emotional playing, because the market has no real direction. The triangle is huge, and thus, the whipsaw is as well, so you need to adapt and adjust to these conditions. Things always change, and this process will as well. When the market gets a bit easier, you’ll look back and say,” why didn’t I wait more. Why didn’t I have patience.” It’s time to put the practice of patience in to full awareness mode.
So, the market is nowhere for now. The Nasdaq is under performing. If you need longs, look at the leading Dow stocks. If you want shorts, look at financial and commodity stocks, and make sure they’re not oversold. Add tech stocks to that mix. 1202 is support. 1260 is resistance. They could be locked into this range until after New Year’s.
Peace,
Jack
