Yesterday’s losses were quickly erased as traders cheered earnings. CAT reported earnings prior to the bell and after buying back a ton of stock they were able to goose earnings enough to beat rather easily to the upside. Buying started from the start and did let up until late in the afternoon. Fears over a new ebola patient sent headline scraping algos in a frenzy. While we were able to fend off most of the selling the market did hold up relatively well considering. Volume was lower across the board giving an indication institutions were not in the market buying hand over fist. There are certainly more and more positives showing up in the market, but taints still remain. The stain on this rally has been lack of leadership and the V-shaped nature of the move. Caution and patience is still warranted as we await our entry signals.
This week’s sentiment numbers certainly flipped back to the bulls camp. II survey is still looking for a correction, but the number of bears continue to remain at a very low 17%. AAII Bulls jumped to 49% as bears drop to the low 20s. NAAIM exposure index moved higher from 9% to just over 40%. The market is just 6 days from its low and has recovered majority of its losses. Given the rally the move back towards a bullish tint is not surprising one bit. Remember, AAII bulls hardly flinched during the sell off while NAAIM respondents reduced long exposure rather quickly. How could the professionals get cold feet so quickly while the amateurs held steady? We could simply fall flat on our face here and return to the lows. At this very moment it appears AAII survey respondents were right.
After-hours earnings featured two stocks heading in opposite directions. AMZN and MSFT both reported and both stocks have gone in separate directions. AMZN trend has been to the downside while MSFT has been in an uptrend. AMZN continued its downtrend as the stock closed out its after-hours session down more than 33 points. On the other hand, MSFT finished the after-hours session higher by more than 1.4 points or 3.11%. Earnings season continues to be a crap shoot and proves difficult to trade in. Why take the risk when a stock reports less than two weeks away?
We now know the NYC man who was feared to have Ebola does have Ebola. The key here will be if others catch the fatal disease and if they do you can almost be certain more fear heading back into the market. We care about price action and price action alone. Headlines do not drive our decisions only price action does. Volume helps with conviction. Stay patient with this market and stick with the game plan. Have a great weekend and we will see you here next week.
