Drifting Into Weekend Mode

 | Jul 02, 2014 | 4:12 PM EDT
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After the fireworks on the first day of July, things calmed down quite a bit today. Breadth was poor with about 2,250 gainers to 3,500 decliners but overall the selling was mild. Key names like Facebook (FB), Tesla (TSLA), Netflix (NFLX) and GoPro (GPRO) reversed, but it wasn't too severe. The fact that a long weekend is coming up and volume is slowing is probably a good excuse for profit-taking.

The danger is that the market drifts and market players start selling out of boredom. It is a bit premature to start worrying about that but the very flat intraday trading range and lack of volume raise concerns that next week is going to be very slow.

We only have a half day of trading tomorrow but the June employment numbers will be released at 8:30 a.m. ET, so it won't be completely dead. It is interesting that interest rates have bounce back the last couple of days, which may be an indication that the market is looking for a strong report. If it is, look for the bears to start up with the "good news is bad news" meme again.

While the action wasn't very lively today, the market continues to do nothing wrong. It is easy to find negatives if you are so inclined, but that hasn't been a very profitable. There will be a time to worry and, so far, nothing in the price action is very troubling.

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

July 02, 2014 | 1:30 PM EDT

Just Drifting Around

  • I'm not sure what is causing the flatness, but it's boring.

In addition to the positive action, one of the trends of the market lately has been extremely tight intraday ranges. It goes almost totally flat for hours. In the last couple of weeks, we have seen some of the tightest ranges in the last 10 years, according to the folks who study the stats.

I'm not sure what is causing that flatness, but it makes things boring intraday. Maybe it means that the computers aren't as active or perhaps it is a reflection of a disinterested public. It isn't unhealthy from a technical standpoint. In fact, it is probably positive as it helps to give us bases.

The typical volume patterns that we used to look for don't seem to matter too much. Yesterday, for example, the Nasdaq barely saw an increase in volume over Monday, while the NYSE had a slight decline. Normally, that isn't what you want to see on a breakout move to new highs, but it has been very typical and doesn't seem to signal a lack of solid momentum.

I suspect that many folks are now preparing to close up shop for a long weekend. The market is drifting around and trade is becoming choppier. One position I'm watching closely right now is Direxion Daily Junior Gold Miners Bull 3X Shares (JNUG). It is has been very volatile lately but there is support around $24 and a base is developing. If nothing else, it moves around faster than most everything else these days.

July 02, 2014 | 10:29 AM EDT

Looking for Quick Trades

  • Focus your energy making money in the short term.

The indices have minor follow-through after Tuesday's big day, but traders are still actively looking for action under the surface. When you have a breakout day, it causes great anxiety among underinvested bulls and they are now actively trying to put money to work so they don't miss out again. It is a bit trickier as trading is going to slow quite a bit in front of the long weekend, but we have the positive bias of "holiday trading" to help the bullish cause.

I'm keeping my focus on quick trades in individual stocks. There isn't much use in trying to time things based on macro matters, and messing around with calling tops is a very costly endeavor. Rather than worry about the big picture spend your energy looking for ways to make money in the short term.

A number of stocks I've discussed recently continue to act well. Arista Networks (ANET), Tarena International (TEDU), GT Advanced Technologies (GTAT) and SunEdison (SUNE) continue to move nicely. A couple of new names on my radar are Conatus Pharmaceuticals (CNAT), StemCells (STEM), Weibo (WB) and 58.com (WUBA). It is going to be tricky if volume keeps slowing, but there are good technical patterns even if many stocks are extended.

July 02, 2014 | 7:54 AM EDT

Again, Don't Overthink It

  • There are many reasons why this market shouldn't be doing so well, but they are irrelevant.

succeed in life, you need two things: ignorance and confidence. --Mark Twain

The smart way to deal with this very strong market is to just embrace the trend and ride it as long as possible. That is what is working, but if you traded prior to the meltdown in 2008-2009, it is impossible to not take note of the tepid mood. There is little excitement or joy and the market feels nothing like it did in years past.

While this action looks a bit like the 1999-2000 run it has none of the same feel to it. The action today isn't as extreme as what the Nasdaq saw back then, but the persistency of the trend is similar. What is very different are the emotions that surround the action.

The different in attitude can be summed up quite simply as a difference in the level of confidence. According to MarketWatch the Consumer Confidence Index was 144.7 at the peak of the move in 2000. Today that index stands at only 85.2.

It is pretty obvious why market players aren't as confident today. The economic recovery has been the slowest since the Great Depression, unemployment is still painfully high, central banks are viewed as a source of market manipulation, many people still have no equity in their homes, zero interest rates mean there is no place to park idle cash, inflation is impacting food, gas and health care, and we are missing the hope that was so prevalent back in 2000.

Back in 2000, the talk was often about why things can't keep on running. It was a whole new world, and even the analyst were coming up with new ways to value stocks in order to justify even higher prices.

These days the talk is more about when will we pay the price for the endless flood of cheap money created by the Fed and other central bankers. Bulls these days stick with the market because it is acting well not because they are convinced that fundamental conditions are great.

The irony is that this lack of confidence and belief in the market has created a giant wall of worry. It is one of the reasons we keep trending higher. The bulls don't fully commit to the market and are forced to slowly deploy their buying power out of fear of being left behind. They buy because they fear being left out not because they are highly optimistic.

The important thing is to be cognizant of the difference in mood and to not be overly bearish because of it. It is very easy to be skeptical and downright negative because there isn't the sort of euphoria we generally associate with strong bull markets. Many market players despise this market because they don't understand it. They don't see the justification for the strength and feel they have to keep fighting it.

I keep suggesting that we simply stick with the trend and not engage in chronic top calling. That sounds pretty simple, but it is very tough not to have some doubts when you read the paper, talk to friends and contemplate the health of the economy. There are lots of reasons this market shouldn't be doing so well, but they are irrelevant.

When the price action shifts, then we will need to amend our approach, but for now, the bulls have the ball and deserve a high level of respect.

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