A No-Drama Market

 | Jun 30, 2014 | 4:26 PM EDT
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It was another slow but mostly positive day for the market. The indices were mixed, but breadth improved most of the day, and most sectors finished in positive territory. There certainly were few signs of any urgency to exit this market.

Although it has been consistently positive action, the trading has been tricky, as stocks have danced around to changes in indices as well as end-of-the-quarter window-dressing. The end of the second quarter produces an unusual high level of artificial trading as portfolios are rebalanced and marked up.

The good news for the bulls is that the positive bias continues as we kick off the new month. In addition, seasonality in front of the Fourth of July tends to be positive as well. There just isn't any good reason to sell right now as the slow-motion rally continues.

If you are looking for drama, you aren't going to find it in the market right now. It is slow and steady, with the emphasis on slow.

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

June 30, 2014 | 02:06 PM ET

Missing the Ebb and Flow

  • It feels contrived and artificial.

The good news is that the market continues to act very well. The bad news is that there is no excitement.

Things are quite positive, but it is slow and boring market. Traders are making some money, but they are loudly complaining about the lack of action.

Breadth has moved into positive territory with about 3,000 advancers to 2,550 decliners and there continues to be some good action in momentum names like Tesla (TSLA) and Palo Alto Networks (PANW). There is probably some window-dressing efforts moving names like Apple (AAPL), but that shouldn't be very surprising. 

The only thing worse than trading this market is writing about it because there really isn't anything new. This is the same sort of action we had all of last week. Many commentators focus on why the action is unjustified and trying to predict when it will come to an end, but that certainly has not been very productive.

What this market has been missing over the last few years is the natural ebb and flow of the price action. We so seldom seem to have that sort of volatility that reflects the way that emotions actually work. It feels contrived and artificial and that is a part of the reason why volume keeps falling as the market goes steadily higher.

My advice is to not spend too much time worrying about it. The action may not feel right and it certainly is slow, but there are profitable trades and we should focus on those. The one great certainly is that conditions will change, but that isn't a good reason to ignore the opportunities that exist now. 


June 30, 2014 | 10:36 AM ET

Taking Advantage of the Softness

  • The overall tone of trading continues to be quite upbeat.

Dip buyers are taking advantage of a little Monday morning softness and momentum chasers are quite active. In the early going momentum names like Tesla (TSLA), GoPro (GPRO), Palo Alto Networks (PANW) and GW Pharmaceuticals (GWPH) are quite active.  Breadth is still running negative but biotechnology, chips and retail are showing green. Precious metals and banks are the laggards.

Keep in mind that we have quite a few cross-currents impacting trading right now. We have the unwinding of some of the artificiality created by the Russell indices rebalancing, it is the end of the second quarter and we have a short holiday week. In addition, we have a fair amount of economic data and some Fed speak on the agenda.

Right now, none of these things seem to matter too much, as the overall tone of trading continues to be quite upbeat and traders are actively looking for action. Typically the mood is positive in front of a long weekend, which is often a self-fulfilling prophecy, as traders expect it to occur.

I added some PANW, which is my Stock of the Week, this morning, as it is coming out of a good-looking cup-with-handle pattern on a target increase to $105 by Morgan Stanley. I'm looking at adding to a position in Arista Networks (ANET) and a couple other things, but I'm not doing much new. The market action is certainly positive, but the entry points can be challenging. 

June 30, 2014 | 7:34 AM EDT

The Pace Is Slowing

  • It's time to manage positions and keep on plugging along.

It does not matter how slowly you go as long as you do not stop. -- Confucius

As we wrap up the first half of 2014, the DJIA is up 1.66%, the S&P 500 is up 4.79% and the IWM is up less than 1%. In view of all the talk about the high level of bullish sentiment and the refusal of the senior indices to correct, it seems like the overall returns should be much higher. The choppiness of the action and the mixed performance in momentum names and speculative small-caps have helped to keep things contained.

The first day or two of a new quarter tends to have a bullish bias, but we only have a 3-1/2 day week as we close early on Thursday and all day Friday for the Independence Day holiday. The day prior to a holiday tends to have a positive bias, so that may help the bullish cause despite what should be a very slow week of trading.

We do have some economic news this week that could shake things up. On Thursday the June jobs news will be released and Janet Yellen is schedule to give a speech on Wednesday so we have some potential catalysts, but nothing major is expected at this point.

This past Friday we had the annual rebalancing of the Russell indices, which added some artificial volume and gave the appearance of a little added excitement. But make no mistake, it is very slow trading right now. We still have a clear uptrend, but the pace of the advance slowing. The S&P 500 is right around the same level it was on June 10, although the underlying tone of trading has been positive. 

From a trading standpoint there has been some pockets of momentum and good action in select small-caps, but it has been fairly narrow and we aren't seeing a lot of wild action. At this point even some of the bulls believe the market needs a good shakeup to provide better opportunities.

One of the most challenging things about the market over the last few years is that the rallies tend to slow, but never pull back. Traders that try to play some downside volatility are constantly frustrated as things hold up despite overbought readings and other negative factors. Although it seems logical that we have some sort of consolidation, we have extremely strong underlying support so we end up correcting by simply sitting still.

The lack of downside volatility is what has doomed many funds to underperformance the last couple years, but there is still legions of bears out there trying hard to pinpoint an exact market top. It is an exercise in futility, but they just can't resist being the genius that calls the exact moment the market makes some sort of top.

The way to deal with this market is to manage positions and keep on plugging along. While we want to monitor overall market health, a focus on market timing has been more a handicap than a benefit. We have to stay focused on individual stocks and let them be our guide to the market.

There is a great temptation to make big dramatic market calls when things are so dull, but there really is no reason to expect that we are going to see a sudden surge in volatility. The market dynamics right now suggest that things will stay slow and steady. Traders would love to see some movement on the news, but right now the market seems quite content to cause frustration by doing little.

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