Bulls Are Pushing Hard

 | Apr 22, 2014 | 4:22 PM EDT
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Our V-shaped bounce is now into its sixth day and is just two days short of the February move. Back then was finally slight profit taking on the ninth day, but the move didn't stop until we had made a new all-time high. This time the Nasdaq and small-caps have much more ground to make up, but the DJIA and S&P 500 are within shouting distance of their all-time highs.

Market players seem to have taken this straight-up move in stride. They are no longer surprised by such lopsided action and are quick to embrace it. Another good sign was that the momentum stocks played catch-up with Tesla (TSLA), Facebook (FB), Chipotle (CMG) and Google (GOOG) seeing action. Biotechnology was the big winner today, which is important since that group kicked off the big rotational correction.

While this bounce has certainly helped to bail out some stuck bulls, it doesn't do much for the charts, which suddenly go from oversold to extended on light volume. A few days of rest would help quite a bit in solving that issue.

Overall, the bulls are pushing hard and that is creating good underlying support. It is easy to be skeptical or uncertain but the price action is telling a bullish story.

Have a good evening. I'll see you tomorrow.

April 22, 2014 | 1:57 PM EDT

Keep Looking for Buys

  • That's what I'm doing.

Our V-shaped bounce continues. Although it has slowed a bit, we still aren't seeing any selling pressure. Intraday, we've hardly ticked down at all and breadth continues to improve. We have better than three gainers for each decliner and all sectors except precious metals are in the green. Interestingly, the two groups that led the recent downtrend, biotechnology and solar energy, are leading to the upside today.

What is always tough about this sort of action is that the low-volume V-shaped moves simply don't produce good chart setups. We end up with many stocks extended on light volume, which isn't an ideal entry. If you want in you have to chase things that may not look so great technically, but that has been the nature of this market for a long time.

In the "old" days, I would sell down positions into a market as it ran up five, six or seven days in a row. We would pull back and then it would be possible to reload positions as they found support. In this market, selling into strength tends to leave you on the sidelines struggling to find new entries. It is what makes the V-shaped bounces such a pain for traders who cut their teeth on normal volatility.

The only way to deal with this sort of action is to keep looking for buys. That is what I'm doing.

April 22, 2014 | 10:42 AM EDT

The Bounce Goes On

  • And biotechnology is leading the charge.

Our V-shaped bounce continues, and biotechnology is leading the charge. The group led the market down over the past month, so it's a good sign to see it regain its momentum. Many of the stocks are still well off their highs but they are bouncing big this morning. A good example is Intercept Pharmaceuticals (ICPT), which did a secondary at $320 per share but is still well below that despite bouncing $35 higher this morning.

While the action looks good and we have better than 2-to-1 positive breadth, I'm using the strength to sell down a few things that have made good moves. I gave back too much when we reversed the last few weeks and now that I've recouped some of that, I want to make sure I don't let things slip again.

How far do you trust these V-shaped bounces? Suddenly there doesn't seem to be a worry in the world, and the speculative money is back to chasing the biotechnology names. All the worries are suddenly forgotten, but nothing has changed other than the price action.

I'm digging for new buys but keeping time frames very short and stops tight. I'm more inclined to add later in the day as the market proves it can hold up. Little stocks like Highpower (HPJ) and Sky-mobi (MOBI) are acting better.

April 22, 2014 | 8:45 AM EDT

Momentum Money Is Perking Up

  • This is the sort of support the market needs.

"Buy the ticket, take the ride." --Hunter S. Thompson 

Yet another V-shaped bounce is under way and some good earnings reports and acquisition news may help to keep it going.

The bounce hasn't looked very healthy as volume has been light and some key names such as Google (GOOG, GOOGL) have lagged, but some of the most important momentum names like Tesla (TSLA), Facebook (FB) and Amazon (AMZN) have started to perform better. In addition, some of the speculative small-caps and biotechnology names, which have led to the downside during the correction, are finding support and starting to turn up.

The good news is that a strong report from Netflix (NFLX) and some acquisition news in the drug sector are helping to bolster sentiment. Market players are gaining a bit more confidence and are looking more optimistic in front of the biggest day of earnings so far this quarter.

The bears can easily find plenty of flaws with the recent action but that always seems to be the case when the market bounces like this. The indices have been up for five days in a row now and volume has been declining the entire time. Breadth has been OK but, most importantly, some of the key leadership names are finally performing better and the report from Netflix will help support that.

Despite the five day run, the Nasdaq and Russell 2000 (RUT) each still has a very long way to go in order to recover. Both indices are still well below their 50-day simple moving averages (SMAs) and have substantial technical overhead. The recovery is just a fraction of what we had back in February.

The Dow Jones Industrial Average and S&P 500 never corrected much in the first place and are right back in the trading range that has been in place since the first of March. It will still take quite a bit of work for them to push back to the recent highs but, overall, the senior indices look fine. The action under the surface continues to be the big problem, but that did improve somewhat yesterday.

Dozens of V-shaped bounces over the last few years have taught us a couple things. Don't obsess too much over the poor technical action. Light and/or declining volume has been typical and may actual be a positive indicator. Breadth has typically been fairly strong and we did see that yesterday. The most important lesson has been to not try to anticipate when these bounces will fail. The bears have been slaughtered trying to fight them and, ultimately, they have ended up as short-squeeze fuel. There are lots of reasons to be distrustful and to question what the market is doing, but market dynamics favor sustained V-shaped bounces. It is better to stick with them than try to find reasons why it won't happen again.

Despite the good news flow, a slightly negative open is on the way. That has tended to be a positive lately, as it allows the dip-buyers to slowly inch in. We shall see how things develop but the momentum money is showing signs of life and that is the sort of support that we badly need.

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