Trade Hopes and Apple Mask Deteriorating Action in Individual Stocks

For the third time in five trading days the S&P 500 gapped higher at the open on positive trade news. The news was a statement by Chinese officials that there was an agreement to roll back the imposition of planned tariffs as a “Phase One” deal was negotiated.

Later in the day, the U.S. failed to confirm this news and White House trade advisor, Peter Navarro, stated on Fox Business that there is no agreement and that China is “trying to push the U.S. in a direction” by issuing these statements. The indices reversed on this news but held up relatively well on flat breadth.

After Thursday’s close Disney (DIS) put up a good earnings report and offered a strong forecast for its new streaming service. The stock is indicated up about 6% or $7.60 in premarket trading. Disney is relatively lower-priced than other DJIA components so it does not have a heavy weighting but the big move is giving the DJIA a boost Friday morning. The S&P 500 and Nasdaq 100 are showing only very minor movement before the open.

Although the news about tariff rollbacks Thursday proved not to be correct, the indices held up very well. After a strong run and with multiple gaps on the chart, conditions were good for some sort of reversal to hasten consolidation. My warning to look for an intraday reversal proved to be correct but the reversal was quite mild and didn’t really shake up technical conditions very much.

Disney is helping sentiment this morning but the big difficulty with the market right now is that there has been considerable narrowing. Apple (AAPL) and a few big banks were the main drivers behind the indices. Small-cap action has deteriorated and breadth has been slipping

Leadership outside Apple, big banks, and now, Disney, is nearly nonexistent. Semiconductors have shown some relative strength but the improved stock-picking that occurred for a few weeks has shifted and we are now back in a market focused more on overall direction rather than stock selection.

I continue to hunt for some new buys but have found a few new entry points in stocks that I like. While overall technical conditions remain good, stock selection is so poor that it forces a more defensive posture.

The market needs some names to start leading other stocks higher after it consolidates. Apple alone can’t do the heavy lifting forever.

(Apple and Disney are holdings in Jim Cramer’s Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)

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