Stock Market Early Morning Insights – April 20, 2016

Yesterday we saw further rotation out of semiconductors stocks. The group has been struggling for nearly a month, and the news of Intel laying off 12,000 workers worldwide must have sent the group into a tailspin.

One of the stocks in the Semiconductor Devices group that I have been following because of its stellar earnings, MXL, Maxlinear, broke down through short-term support and fell 10.19%. I am pointing this out because it is a good example of the dominance of group strength or weakness, and how most stocks are affected by the group, and how the group often takes precedence over earnings.

Good earnings are in the past, and investors look to future earnings, not past earnings. And in the case of the Semiconductor Devices group, with Intel as the largest market cap stock in the group, when it announces that it is laying off a large number of employees because of soft demand in the PC market, it is only natural that other stocks in the group will follow. The news of the layoffs must have leaked sometime during the afternoon, and many of the Semiconductor Devices were punished with decliners leading advancers by nearly 3 to 1 margin.

The NASDAQ Composite was relatively weak yesterday with some of the leading stocks getting pounded. Netflix was the biggest loser in own Canaries group, down 13%. The only positive stock in the group was Facebook, up 1.7% and has earnings do on April 27. Tesla, the must own stock of 10 days ago, was down another 2.6% on heavier volume, but it looks like it is finding short-term support at its current price level. Apple, another must own stock four days ago fell again, but only down .5%. These large-cap tech stocks being down affect the NASDAQ composite, but most of them still have earnings to come in the near future, and could easily reverse their weakness.

With the weakness and tech stocks, money is flowing elsewhere into Precious Metals, Steels, Energy, and Transportation stocks, primarily Airline stocks which have been one of the leading groups coming off the bottom. I have mentioned Steel stocks several times, and they continue to go up, and it has absolutely nothing to do with past earnings.

This is a chart of the top 100 leaders based on a combo ranking that emphasizes Relative Strength and Group Strength. This shows how dominant Precious Metals and Mining and Steel stocks are. The Steel group only contains 25 stocks, and 11 of them are in the top 100 RS and Grp Rk stocks. The Grp Rk is 98, and 16 of the 25 stocks have an RS of 90 or greater.

The other indexes, the SP 400 mid-cap and the SP 500 small-cap, were up yesterday, and show the continuing strength of this market. All trends remain up.

STOCK MARKET EARLY MORNING INSIGHTS

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