More Fizzle Than Sizzle

 | May 22, 2014 | 4:37 PM EDT
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Many small-caps had their best day in a while, but the energy fizzled as the day progressed and the market closed poorly. Many of the beaten-up biotechnology names had good bounces and solar energy had its second day of strong action. Both groups were the first to rollover in March, so it is a good sign to see them outperform.

Volume was a little better today but missing the sort of aggressive speculation that suggests sustained momentum. In fact, there were signs that many traders are worried about being caught in a failed bounce, and with volume likely to thin in front of a long weekend, the inclination to lock in recent gains is likely to increase.

I definitely like seeing better small-cap action as it means that there is more speculative interest, but I'm afraid it may be just a temporary respite. I still see little opportunity to put substantial cash to work. If we still had the tendency toward V-shaped bounces, I'd be holding more longs but I think the days of the quick and easy, straight up move to new highs are over.

Selective stock picking worked a little and that is a start, but we are still faced with a very tough environment.

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

May 22, 2014 | 1:25 PM EDT

Looks Like a Dead Cat Bounce

  • At least the small-caps are picking up.

The good news is that small-caps are leading the market. The bad news is that it is still very slow, low-volume trading that looks a lot like a dead cat bounce. The main driving force is that traders are bored and are creating the action. The danger is that they may decide to lock in gains and move to the sidelines at any moment, especially with a three-day weekend beckoning. Gains have not been easy lately, and there is going to be an inclination to book them before they slip away again.

It is nice to see some small-caps act better, and I'm hopeful that this action will lead to bases and better charts. Charts have been terrible for a while, mainly because support has not held up. This may just be holiday trading, but at least there are buyers looking at the more speculative names.

One thing that has been working the last few days is speculation in low-priced names like India Globalization Capital (IGC) and NewLead Holdings (NEWL). I believe Royale Energy (ROYL) could be another that sees follow-through, and I'm building a position there as it pullbacks to $3.60 or so. Sky-mobi (MOBI), an old favorite, is starting to turn up again and that is a good sign.

The action is definitely better, but there is no reason to be too bullish.

May 22, 2014 | 10:23 AM EDT

Hungry for Action

  • But the level of risk remains high.

We have a good tone to early trading as market players are showing increased interest in small-caps and momentum names. Breadth is quite good at well over 2-to-1 positive. All major sectors are in the green and we have leadership from old favorites, biotechnology and solar energy.

Typically, the days around a long weekend have a positive bias, which may be helping but mainly it looks like traders are just hungry for action. There hasn't been that much to do lately, but Facebook (FB) and Google (GOOGL) are showing life and that is drawing in buyers.

The last two times we had action like Wednesday's we ended up with an ugly reversal the next day, so I suspect that traders will have their fingers on the eject button. There is nothing technically appealing about this bounce action, as volume is pitiful and there is still overhead resistance and not a lot of support.

I'm itching to be more aggressive with my trading but there isn't enough momentum to really start chasing anything. A few small-caps are attracting interest, but it is very limited and still quite volatile.

One pattern that I like is Pernix Therapeutics (PTX), but we need better sustained buying to get those sorts of stocks moving. This market is trying very hard to suck us in, but the level of risk is high.

May 22, 2014 | 8:25 AM EDT

Still Little Reason to Trust This Market

  • Bulls have slight traction but face hard work for momentum.

The greatest deception men suffer is from their own opinions. --Leonardo da Vinci

Positive but low volume action on Wednesday is helping to boast bullish sentiment but the vast majority of stocks are still stuck in a down trend.

The DJIA and S&P 500 continue to do a good job of covering up the underlying weakness that has plagued the market since the beginning of March. But the average stock is still technically-broken and needs further work before we can be more trusting of this market.

The market correction over the last couple months has been one of the best hidden I can ever recall seeing. We still have many folks in the media celebrating the fact that the DJIA and S&P500 are within shouting distance of all-time highs, but they completely ignore the carnage that has occurred in momentum and small-cap names.

A small group of big-cap defensive names has painted a very deceptive picture of what is really going on in this market. The biggest danger is that market players keep hoping that the underperforming stocks are going to start to turn-up in sympathy with the defensive names that continue to show relative strength.

We have some periodic bounces, like Wednesday, that keep the bulls hopeful. But then we always have had a series of failed bounces that cause great pain just as market players start to think that maybe the momentum and small-cap names are finally on the mend.

There were some good signs Wednesday like Facebook (FB) and Google (GOOG) although the volume was painfully thin. However small-caps underperformed and we saw money flowing back into big-cap defensive names again.

The anticipatory bulls are ready to declare that the worst is over and that we are ready to run. But for the reactive bulls, like me, we still need more proof. There just isn't enough sustained momentum or sufficient chart setups to justify aggressive deployment of cash. If you are trying to put cash to work you have to be willing to buy less than idea charts and then you have to be hopeful that we will have some V-ish action again.

One of the things that have added to the confusion recently is the lack of clarity from the Fed. On Tuesday we sold off in large part because of comments from Fed members about how quickly interest rates would rise. But we reversed course Wednesday as the Fed minutes made it clear that there really isn't any strong consensus about how tapering and unwinding of accommodative monetary policy is going to play out.

We had some slightly positive economic news out of China last night but Best Buy (BBY) is continuing the pattern of weak retail sales report. The bulls have some slight traction but they have some hard work to do in order to ramp up the momentum.

There are likely to be some trades but there is still is little reason to be very trusting of this market. 

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