Not Exciting, but Good

 | Jun 27, 2014 | 4:22 PM EDT
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The market suffered some selling pressure this past Tuesday, but we have had remarkably good support since then. On each of the last three days there was some softness in the early going, which the dip buyers acted on very quickly.  We then worked slowly higher and managed a good close. There was just no sustained selling pressure at all.

If you want to find fault with the market, you can argue that it is slow and boring. But there isn't anything wrong with the price action. The bulls are staying stubbornly strong. That doesn't mean that trading is easy. There is a good amount of choppiness and the pockets of momentum are limited, but those with a bearish bias are having an even harder time.

We had the usual Russell Index rebalancing craziness, which produced a big spike in volume at the close. There was nearly a billion shares traded at the bell in stocks listed on the Nasdaq. Twitter (TWTR), for example, had a block of more than 10 million shares cross at the close

This volume looks great technically for the indices, but it creates some very deceptive individual charts and is not easy to game. Unfortunately, it renders many charts useless, as there is no way to tell how much of the volume is from real demand and how much is from indexing. 

Overall, the market action is quite good. It might not be very exciting or easy to trade, but there is no questioning the fact that the trend is positive.

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

June 27, 2014 | 10:31 AM EST

Buying in Slow Motion

  • The odd thing about this market is how slow the action is.

For the third day in a row, the dip buyers buy the early weakness and push us back close to even. We haven't been able to gain much upside traction after the quick bounce, but it shows the level of underlying support out there. The dip buying looks almost reflexive, and it may well be, given how consistently it has worked.

Breadth is almost exactly even. We have some minor strength in solar energy and precious metals. The tone of trading in the big cap momentum names is positive, but there is quite a bit of chop once again. 

The odd thing about this market continues to be how slow the action is, despite being close to all-time highs and having plenty of bullishness and a strong uptrend. Market players definitely like this market, but they aren't very emotional about it. Or maybe the humans are gone and it is just the machines playing games with each other.

In any event the trading is quite challenging. Names like Twitter (TWTR) for example attracted some momentum money yesterday and then reversed hard overnight. This has not been uncommon lately, and it is part of the reason why many folks are on the sidelines and not doing a whole lot.

I have a few minor trades going in things like SunEdison (SUNE) and Organovo Holdings (ONVO). I've raised cash levels this week mainly because of my inability to find things I can buy aggressively, rather than a negative market bias.

Keep an eye on gold miners. That group is trying to turn back up again and I'm thinking of adding some Direxion Daily Jr Gld Mnrs Bull 3X Shrs ETF (JNUG). 

June 27, 2014 | 7:57 AM EDT

Get Ready for Russell Rebalancing

  • Along with big volume, it can create some unusual volatility.

My point is, life is about balance. The good and the bad. The highs and the lows. The pina and the colada. -- Ellen DeGeneres

It is a summer Friday, but volume today is likely to be close to the highest level of the year. It isn't because there is great interest in the market. It is because today is the day that the Russell indices are rebalanced at the close. There will be huge blocks of stocks crossed at the close as the adjustment are made. A list of the stocks that are being added and deleted can be found here.

The Russell reconstitution is important not only because it creates huge volume, but because it can create some unusual volatility. Big baskets of stocks are bought and sold using complex schemes to ensure that the brokers who put together these transactions don't lose money. In years past there has been sudden intraday surges and drops on the day of rebalancing as these programs go to work.

Keep in mind that many of the shares needed for the rebalancing have already been bought or sold by brokers who are now waiting to cross the trade to the index funds at the close. Their goal is to make sure they aren't caught with big losses in doing so, which is why some of the program trading can be quite disruptive today.

In addition to the Russell rebalancing games, we have the typical end-of-the-quarter window dressing to consider as well. This should help to keep a bid under the market as it has for the last few days. Window dressing probably helped the indices bounce back from the sharp selling that occurred yesterday morning, which was probably caused in part by the Russell rebalance.

The computer games will provide some volume and brief bouts of action, but we are still likely to be plagued by slow trading. We have had good price action following the selloff on Tuesday afternoon, but not much in the way of momentum. The buyers are providing support and the bears have been rendered impotent again, but the pockets of strong momentum are quite limited.

There is no question that the market remains in an uptrend, but upside progress has been slowing. The S&P 500 hasn't had a new high in five days now, which is nothing at all unusual, but it is a slight stalling and reflects the limited momentum we have seen recently.

There is good action under the surface as select momentum and small-cap names attract speculative interest. But it has been narrowing and there are quite a few landmines. For many traders it has not been an easy environment.

There isn't much news flow and the only economic report due is Michigan Sentiment at 9:55 a.m. ET. The market is generally healthy and we are going to see some big volume at the close. Our job is to keep on digging for opportunities and that is what we will do.



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