The Return of 'Normal'

 | May 06, 2014 | 4:24 PM EDT
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The mildly positive action on Monday gave way to a horror show today. There has been a lot of talk about the tendency of the indices to be positive on Tuesdays, which went down in flames today, but what was really notable was how hard many stocks were hit. Twitter (TWTR) and social media were at the top of the list, but there breadth on the Nasdaq approached 4-to-1 negative so there was no shortage of red on the screens.

What was most important about the action today was how we were incapable of building on minor positives yesterday. Last year there was a mad scramble to pile in as soon as positives developed, but this year the buyers aren't embracing the strength and we are seeing more failed bounces.

Market players may not like this but it is a return to normal action. Instead of the endless support supplied by the Fed, we now have real volatility. The bulls aren't being bailed out repeatedly by cheap funds.

While a return to "normal" may be a good thing, it doesn't make the present action look any better. It is downright ugly right now and there is nothing to indicate that it is over. While the S&P 500 and DJIA don't reflect it, there is little question that this market is undergoing a correction. Stay safe and play defense.

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

May 06, 2014 | 1:45 PM EDT

Get Out of the Way

  • And protect capital.

The indices are hitting the lows of the day as I write, and the action looks downright dismal. There is no sustained buying interest. What is worse is that we are seeing more support levels fall.

In this environment, you have to get out of the way and protect capital. Too many folks try to bottom-fish and find out that stocks can go much lower than they think reasonable. It is very easy to have the same cuts and nicks add up even if you just have small positions. What often happens is that a buy that looks good one day will turn the next and if you don't act quickly, you find that your gains have turned into a loss.

There is no reason to mince words. This market is acting very poorly and there is no way to know how much longer it will continue. Remain cautious until there is a clear reason to be more positive.

May 06, 2014 | 10:45 AM EDT

More Energy Needed

  • I'm looking at solar stocks because the market is boring.

So far, my request for better and more interesting trading action has been denied. It is sloppy, choppy and downright pathetic. Breadth is better than 2-to-1 negative, momentum stocks are almost all red again and we have biotechnology, homebuilders and retailers taking hits. There are almost no pockets of strength to attract the hot money.

It is very easy to make boredom trades in this environment while you wait for things to shape up. It is a good way to take quick little losses too, but traders tend to have a bias toward action and they need to stay occupied. Just make sure you don't let a boredom trade turn into a long-term investment if it doesn't work.

I've done very little so far. I'm keeping an eye on SunEdison (SUNE), which is a nice-looking chart, and I am pondering some of the other solar-energy stocks as well. Names like SunPower (SPWR) and First Solar (FSLR) have been developing but momentum traders are still moving very slowly.

The market has done well coming back from early weakness recently and it is trying to bounce off lows. If we can develop better buying energy, it might not be too bad.

May 06, 2014 | 7:50 AM EDT

Not Many Compelling Buys

  • Buyers are watching but they aren't biting yet.

Energy and persistence conquer all things.--Benjamin Franklin

The good news is that the market battled back from a weak open and finished at the highs on Monday. The bad news was that there was little energy. Volume declined, breadth was negative and there was no buying rush in anticipation of new highs for the S&P500 and DJIA.

The senior indices continue to look like they don't have a worry in the world while many momentum and small-caps are struggling to find support and turn back up. It was encouraging to see a few of the speculative names find a bit of support on Monday but the Nasdaq, momentum and small-cap indices are still in clear downtrends.

What technicians and momentum investors want to see at this point is a strong 'follow through' day. We need a good sized move on increased volume to signal the return of confident buyers. Once we have that sort of action the chances of a sustained move to the upside continues.

The biggest challenge I see right now is that there just aren't a lot of compelling buys. Charts are chopped up and while we have a few movers like Tesla (TSLA) and Apple (AAPL) even those aren't all the technically healthy. TSLA, for example, has anemic volume and is still trading under the key 50-day simple moving average.

Another problem is that many of the stocks that have been clobbered since the beginning of March have barely bounced. They are still building bases of support and buyers are skittish about trying to catch them at the lows. The dip buyers, who supported this market so well for so long, aren't showing much interest at all.

The good news is that there are signs of stability but we need the bulls to start stepping up more aggressively. There are lots of folks on the sidelines who want to put cash to work but they are waiting for better action before they do so.

We have very flat action in the early going this morning and not much movement despite quite a few earnings report. Buyers are watching but they aren't biting yet.

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