Bulls Deserve Respect

 | Jun 07, 2013 | 4:36 PM EDT
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The bears were feeling pretty good about their chances as selling picked up and took the S&P 500 down to support levels, but on Thursday some panic selling on a spike in the yen gave us a washout and a very strong reversal right at critical technical levels.

Then, on Friday, a not-too-hot-and-not-too-cold jobs report propelled us further as market players regained confidence that that Fed wouldn't taper off its bond buying too quickly.

A huge amount of time and energy was expended this week on whether or not the Fed was going to tape off and the impact it would have on the market.  Wild volatility in Japan and a spike in interest rates added some drama as well, but the main topic was whether this issue of tapering off would be the catalyst for a market top.

Since the liquidity created by the Fed and other central bankers has been the predominant driving force behind this market for years it isn't a surprise that any talk about tapering off would cause some market anxiety. Fortunately for the bulls the employment market and the overall economy are still recovering very slowly. The Fed isn't going to be backing off anytime soon, although they are obviously going to start laying the groundwork for when the big unwind finally does come.

It really is amazing how this market keeps roaring back just when it looks like it is on the brink of a major breakdown. We had somewhat similar breakdowns in February and April and both times we recovered and made new highs within a short period of time. I have doubts we will be able to make it back to the May highs so easily, but you have to give the bulls some respect when they bounce the way we have since midday Thursday.

If the market really is forming a top like the bears hope, then we should see this bounce pressured pretty hard next week but the history has been that we keep running back up and that is the way I'm going to lean.

It is a remarkably resilient market and you can understand why there are many skeptics, but ultimately we have to defer to the price action and once again it looks pretty darn strong.

Have a great weekend. Do something fun. I'll see you on Monday.

June 07, 2013 | 10:36 AM EDT

Trading a 'Goldilocks' Jobs Number

  • It's not too hot, and not too cold.

The general view seems to be that the jobs news was a "Goldilocks" number -- not too hot, and not too cold. The bears tried to fade the opening gap-up but underlying buyers stepped in fast and have the market back at the highs. Breadth is solid at 2:1 positive and we have leadership form biotechnology, retail and regional banks. Gold is the laggard again.

Some of the small-caps I'm tracking aren't doing much, but a few charts that I like are YY Inc. (YY), Canadian Solar (CSIQ) and Celldex (CLDX).

I'm not confident that this is going to turn into another V-shaped bounce, but we are seeing the same sort of thing that occurred each time we saw a dip this year. The longer the market holds up, the more it draws in underinvested bulls sitting on high cash reserves. Of course, the bears are squeezed again and that adds extra fuel.

We have had quite a few intraday reversals lately and if we test the early lows, I'll be making quick sells. But right now, it looks like we are back to "I need more long exposure" action.

June 07, 2013 | 8:10 AM EDT

The Jobs Numbers and the Fed

  • Buckle up. It is going to be a bumpy day.

Whoever controls the volume of money in any country is absolute master of all industry and commerce. --James A. Garfield

Yesterday's test of technical support and intraday reversal has the bulls optimistic that we have put in a bottom, but the big issue that is still out there is whether worries over the tapering of the Fed's bond buying can be overcome.

The market has been under pressure as Japan trades chaotically, interest rates have risen and concern grows that the Fed's easy money policy may begin to slow. The thinking is that good economic news is going to make the market more nervous that the Fed is pulling back, and this morning we have a very important jobs report to test that theory.

The pattern of the market favors the bulls but we can't dismiss the possibility that the market is forming a major top as it loses its primary driving force, which is the very dovish Fed. This market has been a prime example of the old adage "Don't fight the Fed," and now the market is struggling to figure out whether the Fed is shifting its thinking.

As I've mentioned often it has been a mistake to be too negative about this market. Every time it looks like it is about to really crack to the downside, we are reassured that the Fed is still providing support and we trade straight back up. If you bought on a day like yesterday and stuck with the bounce you have done extremely well as the market went straight back up to a high.

However, we can't help but wonder if maybe it is different this time. We have gone straight up since November without any major correction. In fact, the upside momentum has been quite stunning at times. Last night, Japan's Nikkei 225 hit bear-market territory as it corrected 20% from recent highs. The Nikkei was acting much like our markets just a short time ago, and has tumbled even though they are pursuing a very aggressive QE program as well. If the Nikkei can fall like that then so can other markets.

The real issue in the U.S. is how worried the market is about the Fed tapering off its bond buying. Everyone knows it has to happen, but what we don't know is to what degree the market is going to anticipate this action. The Fed is trying to move incrementally and is doing its best to reassure the market that it is not going away too soon or too quickly, but this market has lived on Fed induced liquidity for so long it is understandably nervous.

This morning the jobs news is going to give us a feel for how worried the market is about the Fed. The thinking is that a strong report may be a negative because it will push the Fed to taper more aggressively.

I'm not convinced this single report is going to have that much impact on the Fed, but it will give us some insight into how worried the market is about the Fed. My feeling is that the market wants to bounce further and that is will find a way to spin the jobs news in a positive manner, but if we jump big on strong numbers I'll be looking for the bears to fade the move. On the other hand, a drop on a weak report is likely to bring in buyers.

We'll see how the numbers look at 8.30 a.m. EDT and then go from there. Buckle up. It is going to be a bumpy day.

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