Slow Trading in a Sea of Green

 | Jun 18, 2013 | 4:44 PM EDT
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The indices looked good, breadth was solid and we made a new high for June, but volume was very light and trading was painfully slow. The market is always slow in front of the Fed's interest rate announcement, but today was notable for how little stood out in a sea of green.

Obviously, some folks aren't worried about what the Fed has to say tomorrow, but if we see the word "taper" or some variation thereof, we have an ideal sell-the-news setup. I don't think the Fed is going to do anything to really spook the market, but it isn't going to take much to trigger a little selling, especially after the move over the past four trading days.

The number has contracted recently and we aren't seeing much aggressive momentum, but it is hard to argue with indices that are walking up this way. I'm hearing complaints again from underinvested bulls, but with the Fed announcement looming, it is tough to chase too much, especially when volume is so thin.

Tomorrow we'll have the Fed news and then we can be more opportunistic, as the focus returns to individual stock picking.

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

June 18, 2013 | 1:57 PM EDT

Perky but Slow Action

  • There's little conviction and light volume.

Although the indices are perky, it is one of the slowest days of the year as stocks drift upward, with little conviction and light volume. Unfortunately, it is not a particularly great setup going into the Fed's interest rate decision tomorrow, but a sell-the-news reaction has been very rare lately.

Many traders make the mistake of thinking they have to constantly be in motion, which can result in forced trades on a day like today. It is more important to stay mentally prepared and have a good watch list of stocks to go to when the action picks up. I see a number of stocks that I like, for example, Immersion (IMMR), but the action is so slow I'd rather watch it and look to buy either on a dip when the Fed news hits or on a bigger volume break out. It can be very tempting to buy just to be doing something, but there doesn't seem to be any particular edge right now.

I see a number of stocks like that but we'll have to wait another 24 hours -- when we'll have the Fed out of the way -- before it will be time to be more aggressive. Some folks like to bet on events like the Fed, but to me that is no different than playing a slot machine. The speculation with the best odds occurs after the big news event is out of the way.

June 18, 2013 | 10:20 AM EDT

Momentum Is Lacking

  • Watch for the little nicks, they add up.

It is painfully slow early on. There's a positive bias, especially on the Nasdaq, where breadth is running 1300 winners to 800 losers, but there are very few, if any, pockets of momentum. Chips and oil lead, with slight gains, while precious metals and biotechs lag.

The danger in an environment like this is the little nicks add up. There isn't any major selling, but the things that drip lower on light volume can add up quickly. I try to deal with this by making partial sales but it can be very tricky, especially when you like a stock's prospects longer term.

I made a couple of minor sales into early strength and have made no new buys so far. I see a few things that are setup nicely like YY Inc. (YY), Ambarella (AMBA) and Canadian Solar (CSIQ), but with the action so slow, I don't see any reason to add to my positions now. On the other hand, I have no interest trying to short this action in front of the Fed. The market tends to be correctly optimistic about the Fed and I see no edge on the dark side.

June 18, 2013 | 8:12 AM EDT

Market in Wait-and-See Mode

  • With the Fed on deck, the action is likely to stay contained.

If you spend your whole life waiting for the storm, you'll never enjoy the sunshine. --Morris West

The market is in wait-and-see mode in front of the Fed's interest rate announcement tomorrow afternoon. The only issue that matters right now is whether the Fed is going to set the stage for tapering off its bond-buying later in the year. No one expects quantitative easing to come to a quick end but the question that the market is obsessed with is whether or not the bond buying is going to slow down a bit.

The bulls argue that the market's hypersensitivity to this tapering issue is not justified. The Fed is still going to be there and if there is more economic slowing they will step up again. In fact, a number of Fed members have already reassured the market that no major change in policy is likely to occur soon.

The bears view is that QE has to unwind eventually and tapering is the signal that we will start to lose Fed support. We have lived off the liquidity created by the Fed for years and we had better be ready for that to end. Given how much the Fed has supported this market, many market players are concerned that any tapering, no matter how minor, is going to open the floodgates of selling.

I tend to side with the bulls in this argument but that doesn't mean we have to be on the watch for increased volatility. We have already seen a much higher level of ups downs lately and that is very likely to continue. Yesterday, we had a particularly good illustration of how the market is jumping around on any Fed talk. The Financial Times had a short article about how the tapering off bond-buying is likely to start this fall. The market fell sharply and was back around even before a quick rebound into the close.

Although it may be premature to worry about the Fed and tapering, we do have to watch the technical health of the market. The market topped out nearly a month ago and has been struggling. The S&P 500 is doing a nice job of holding the 50-day simple moving average but there has been increased volatility and much more back-and-forth action than in previous pullbacks. So far, we have not seen the standard V-shaped bounce back to new highs, which is obviously a function of increased worries over how much more central bankers can do.

Europe and Asia have been mixed and we are heading into the summer slowdown. We saw yesterday how things went dead after the gap-up open.

There are good charts out there and stock-picking is working well, which is always a good sign, but with the Fed on deck, the action is likely to stay contained.



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