Looking for Leaders

If you can't change your fate, change your attitude.
-- Amy Tan

The market action yesterday was significant and quite promising. We managed to rally in the face of much bad news. Banks soared while announcing billions in write-offs, and the market was positive despite disappointing earnings reports from Apple (AAPL - commentary - Cramer's Take), American Express (AXP - commentary - Cramer's Take), Merck (MRK - commentary - Cramer's Take) and Texas Instruments (TXN - commentary - Cramer's Take) were disappointing.

The obvious conclusion from this action is that we have priced in the worst. Sentiment had become so negative that it overshot to the downside, and now there is a massive sigh of relief that the world is not coming to an end. In addition, the price of oil and various commodities has come down fast, helping to shore up confidence even more.

We know what the driving forces are behind this move. The big question now is whether it can keep going. While the action yesterday was certainly very positive, issues still abound.

Banks have bounced so big, so fast that it is going to be tough to keep building on that momentum. They are technically overbought, and there is likely to be a bout of profit-taking after some huge gains.

Most important, the market needs some leadership. Technology stocks would be the best candidate, but so far, the earnings from Microsoft (MSFT - commentary - Cramer's Take), Google (GOOG - commentary - Cramer's Take), TXN, AAPL and some small stocks have been lackluster, and the group is not acting well. The sectors that have led for most of the year are oil-, infrastructure- and commodity-related, and many of these have broken down badly in recent weeks. Biotechnology, pharmaceuticals and medical have been leading, but they are defensive in nature and need some help to drive this market higher.

So we have positive sentiment to help, but what we need now is sector leadership beyond the big bounce in banks. The breakdown in oil and commodity stocks is going to accelerate a rotation, but there isn't any great clarity into what at this point. The bulls have a good opportunity to get things moving for at least a decent bear-market bounce, but they need some horses to ride other than financials.

We have a positive open this morning, as yesterday's strong close is carrying over and some decent earnings reports hit. Overseas markets were strong and gold and oil continue to pull back.

No positions.

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James "Rev Shark" DePorre is the author of Invest Like a Shark: How a Deaf Guy with No Job and Limited Capital made a Fortune Investing in the Stock Market. He is founder and CEO of Shark Asset Management, an investment management firm, and he also operates sharkinvesting.com, an interactive online community that serves and educates active investors. DePorre holds business and law degrees from the University of Michigan, is a member of the Michigan Bar Association and a former tax attorney and CPA. He lives in Anna Maria Island, Fla., with his wife and two children. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Rev Shark appreciates your feedback; click here.