Hindsight is 20/20, but today had all the makings of a day a short-term traders should sit on their hands - monthly options expiration, Friday before a holiday weekend, in the heart of earnings season, in a market that has already been extremely choppy so far in 2014. The result was in fact an often perplexing day with more weakness under the surface than the 0.25% gain in the Dow might suggest.
Let's start with earnings. As far as the Dow goes, Strength in the credit cards after American Express (AXP) earnings helped offset losses in Intel (INTC) and General Electric (GE). Morgan Stanley (MS) is not a Dow component, but its strong report and 4.37% gain helped brighten the outlook for the financials after a dismal report the prior day from Citigroup (C). If you are struggling to find a trend in earnings, it's because there hasn't been one. Since the market bottom in early 2009 earnings have been a bright spot in the markets that many bulls have hung their hats on, but right now it seems like companies are consistently struggling to eke top expectations with cost-cutting alone.
Tech was very choppy today on a stereotypical OpEx Friday, with perhaps a slight bias to the downside. Apple (AAPL) showed the most notable weakness, selling off 2.46% after demand for the iPhone from China Mobile users was much more tepid than expected. Amazon (AMZN) continued to hold up well with a 0.96% gain. Twitter (TWTR) finished up 2.69% but bulls were hoping for much more after Twitter started hot out of the gate but continued to fade as the day went on.
Solar stocks were unable to build on yesterday's impressive double-digit moves in Solar City (SCTY) and Sun Power (SPWR) as both of those stocks reversed following early strength. The ags also took a step back today, with CF Industries (CF) holding up best among the names we watch, which include Mosaic (MOS), PotashCorp (POT) and Agrium (AGU).
Biotech stocks continue to stand out and ignore the broader market. The Biotech ETF (IBB) continues to stair-step higher, while Intercept Pharmaceuticals (ICPT) was able to find some footing with a 5.50% gain after an EXTREMELY volatile seven trading sessions. Gilead (GILD) was listed on Off the Charts early this week as a breakout candidate and the stock has performed very well, breaking out yesterday and continuing higher today despite market weakness.
The retail sector is the biggest red flag in the market right now. Lululemon (LULU) is gasping for air, dropping another 2.66% today after last week's outlook warning. Other names on our radar to get hit to varying degrees this week are Best Buy (BBY), JC Penney (JCP), Nike (NKE), Under Armour (UA), Wal-Mart (WMT), Target (TGT), and Starbucks (SBUX).
Nobody can accuse the market of being dull this week, and with options expiration out of the way I think traders would be more than happy for the volatility to continue. While we may not get the macro trending action in indices that we saw in 2013, there is great opportunity right now to use relative strength rules to identify the many divergences in the market right now.
*DISCLOSURES: No relevant positions