Stock Market Early Morning Insights – October 12, 2016

The market got ugly in a hurry yesterday after Alcoa announced earnings premarket. It would have been a lot worse if Apple had not gapped up on the news that Samsung was shutting down production on its Note 7 smartphone. By the end of the day, even Apple could not resist the selling pressure and closed up only .22% for the day on extremely heavy volume. This generated and up thrust flag as traders took their profits after the shorts were squeezed. This is a classic example of selling into news, or even possibly, the end of a rising market.

There’s no question that Tuesday was a distribution day, and after Monday’s failure of the NASDAQ to close in the upper part of its trading range, yesterday was a confirmation of Monday’s lack of demand. Yes, Monday was a bank holiday which contributed to the light volume, but the volume numbers were extremely low, and combined with the weak close, it too had the feel of distribution. Internals were 5.62 to 1 negative for the NASDAQ composite and the number of new highs dropped from 128 on Monday to 44 yesterday. The Arms index at 1.238 confirmed the selling pressure.

Even with yesterday’s ugly market, the NASDAQ composite is only back into its trading range, and there was some buying at the end of the day. With earnings season just beginning, I don’t think we can jump to the conclusion that a correction is beginning, but one traders see days if not weeks of profit disappear in one trading session, we all become a bit nervous about future market direction.

With oil prices holding up, the Exploration and Production stocks did relatively well along with Midstream Oil and Gas stocks. There was strength in some of the Bank stocks, and surprisingly in some Specialty Pharma stocks. This is not true throughout the Biotech and Specialty Pharma stocks, because the IBB, the NASDAQ Biotech ETF, was down 3.8%. The XBI, the SPDR S&P Biotech ETF was down 3.2%. The UUP, the Dollar Index ETF was up .8%, and continues its sharp move higher. The dollar index is up slightly again this morning, and oil futures are once again higher as the right side of the W formation continues to build.

The number of earnings reports is minimal today. CUDA reported yesterday, and although they missed estimates it is trading up two dollars today in the premarket because of a brokerage upgrade. It’s time to be cautious with your capital, and be aware of earnings dates if you are holding a large number of stocks, or are considering entering new positions.

I will try to get a report out this evening for tomorrow because I leave for San Francisco early in the morning. Tomorrow afternoon I will be speaking at Golden Gate University at 4 p.m. to a group of TSAA-SF members and GGU students about top down prospecting and analysis using HGSI. If you live in the Bay Area, you are welcome to attend. The meeting will be in Room 5210 and is $20 for non-members.

STOCK MARKET EARLY MORNING INSIGHTS

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