This Correction Has Room to Run

 | May 14, 2014 | 4:15 PM EDT
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We could use some new adjectives to describe the poor action of this dreary market. Today even the DJIA and S&P 500 were unable to hide the weakness that is eating at the market. We had slow but steady selling all day and it picked up as the day progressed. Breadth was better than 2-to-1 negative by the time we closed and there were few, if any, places for the bulls to hide.

Many market players were surprised to see strength in bonds after a hot PPI number, but by the end of the day, it was clear that concerns about economic growth are more than offsetting any worries about inflation. This market is going to have a tough time doing much to the upside with so much money still seeking safety in bonds.

While it was not a good day for the bulls, it probably was productive that we are seeing pressure on the senior indices. As I've mentioned a number of times, I don't think this market is going to be able to make a good low until there is corrective action in the senior indices. People are saying the market is overbought based on the action in those indices, when the average stock is badly broken.

All we can do is stay out of the way and let the correction play out. Nothing in the action today indicates that we are about to see a major turning point. This correction likely has further to run.

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

May 14, 2014 | 1:58 PM EDT

Drifting Around Listlessly

  • Momentum stocks are comatose and small-caps hardly have a pulse.

I've often written that bad markets don't scare you out, they wear you out. We have a good example of that aphorism today. We don't have big losses or much emotion. We are just drifting around listlessly and don't seem to have any speculative energy at all. Breadth improved slightly and biotechnology is still leading, but momentum stocks are comatose and small-caps hardly have a pulse.

Traders are so anxious for a few flips that they have killed all the bounce attempts so far today. As soon as we are up a few cents they flip longs and reload short and we go right back down to the lows. The tight trading range makes it look like the market isn't even open.

I'd love to give some profound advice on how to deal with this market but there really is nothing much we can do but stay patient and wait it out. If nothing else just stay very selective and try not to make bad trades out of boredom. Nothing is worse than being nicked with small losses because you are looking for something to do.

I've made a couple of small adjustments to positions this morning but I'm close to 90% cash and just biding my time.

May 14, 2014 | 10:43 AM EDT

Hungry for Action

  • But the opportunities are lacking.

So far, the only difference in the market from yesterday is that the DJIA and S&P 500 aren't covering up the poor action. The senior indices are in the red as the Nasdaq and small-cap indices continue to struggle. Breadth is running 1,800 gainers to 3,370 decliners, but there is a little bounce in biotechnology, precious metals and oil.

The biggest positive this market has going for it is that traders are very hungry for action. There just haven't been many opportunities lately, and they are anxious to jump in at the first signs of slightly better action. I certainly would like to be much more aggressive with long trades, but they just aren't there right now.

In a market environment like this one, it is very easy to suffer many little nicks and cuts if you try to force trades. Sometimes the market just isn't going to offer much, so we need to accept that and wait patiently.

One great thing about the market is that conditions always change and opportunities always develop. I guarantee that if you protect your capital and stay patient, there will be plenty of great money-making opportunities soon. Just don't allow the poor market to frustrate you and push you to making bad trades.

May 14, 2014 | 8:18 AM EDT

Anticipating Another Slow Day

  • At the moment, there is little news to drive the market.

Those who lie, twist life so that it looks tasty to the lazy, brilliant to the ignorant, and powerful to the weak. But lies only strengthen our defects. --Jose N. Harris 

When the senior indices are hitting new all-time highs, there is usually buoyant sentiment and much celebration. However, in this market, the senior indices are flat out lying to us. The average stock is struggling to hold support and isn't even close to breaking to new highs. The new highs in the indices are facts but they do not reflect the truth.

The best evidence of the deceptive action in the senior indices is that despite the new record highs there were only about 200 stocks also hitting new highs. Typically, when the market is in a strong uptrend and hitting record levels, there will be 500 or 600 stocks that are at their highs as well.

Another indicator of how deceptive the indices have been is that breadth yesterday was negative -- only about 2,200 advancers to 3,450 decliners. In addition, the Russell 2000 closed at its low and most momentum stocks sputtered out after a good day on Monday, which made for one very sad looking breakout to new highs.

Unfortunately, this is nothing new. This rotational, and well-hidden correction, has been going on for over two months now. What is most surprising is that there isn't any indication yet how this divergence is ultimately going to be resolved.

My view has been that the defensive big-caps that are pushing the senior indices to new highs are not good leaders and they will only hold up for long. So far, I have been proven wrong, as money continues to flow into names such as McDonald's (MCD), Caterpillar (CAT) and 3M (MMM).

Eventually, the gap in performance between the big-cap defensives and small-cap momentum names has to close. The bulls are hoping that the new highs in the S&P 500 and Dow Jones Industrial Average will start pulling up all the stocks that have corrected over the last two months, but most are still resisting the effort. They are not finding much buying support and the lack of speculative interest is quite troubling.

Most notable about yesterday's action, other than the new highs in the senior indices, was how slow and tired the trading was. There were almost no pockets of momentum – most of the movement was in defensive and conservative names. Market players simply had no appetite for bottom fishing or chasing of momentum.

We have seasonality working against us at this point and there isn't much news to serve as a driver. But the lack of interest in the face of blaring headlines about new highs is not cause for celebration. We really need to shake out the residual bullishness so we can complete the washout that started more than two months ago.

The market's problem is that most stocks can't put in a bottom, when there is so much misleading action in the headlines. I wish I had a good solution to this dilemma but there really is nothing much to do but to stay patient and wait for conditions to develop further. The divergence can't last forever and when it does start to close, there will be some good trading opportunities.

We have a quiet start on the way and not much news flow. Earnings due from Cisco (CSCO) tonight will receive some undeserved attention but there not much else to drive the market. I am anticipating another very slow day.

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