We Need Some Excitement

 | Jul 14, 2014 | 4:47 PM EDT
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Back in the old days, prior to the Great Recession of 2008-09, markets that were making new all-time highs were interesting and exciting. The mood would be buoyant as investors were anxiously searching for the next big mover. There would be plenty of volatility and the pockets of momentum would keep traders busy.

In the current market, just staying awake is the biggest challenge. Traders are grumbling about how difficult it is to get much going and it isn't surprising since the indices are trading in amazingly tight ranges intraday. The bulls who have their funds allocated to 401k plans or index ETFs think this market is great -- and they should. Just sticking with the indices has been the easiest, and best, thing to do.

Traders who try to capture relative outperformance through stock picking and active trading are having a much tougher time. There just aren't as many opportunities and it is particularly frustrating to them when the passive bulls, who just sit and wait patiently, celebrate.

From a trading standpoint, it would probably be preferable if we had greater emotion. We need fear and greed rather than just placid acceptance of the fact that the market never really takes a hit. Earnings season truly starts in earnest tomorrow and, I am hoping that will shake the market up a bit. Eventually, things will shift again but, if the excitement doesn't pick up, there may not be anyone around to find out. Have a good evening. I'll see you tomorrow.

July 14, 2014 | 1:50 PM EDT

What's So Good About This Market?

  • The best markets are volatile and provide good trading opportunities.

If your definition of a good market is positive action, then you should be quite happy with the action today. If, however, you define a good market as one with lots of good trading action, then you probably aren't so pleased.

There is lots of green, but the indices have been close to flat since the open, and there isn't much energy.

There are a couple themes out there but nothing major. China-related electric cars, for example, are moving -- Tesla (TSLA), Kandi Technologies (KNDI), China BAK Battery (CBAK) and a few others. Breadth is good, and there is plenty of green, but the chasing is quite limited.

Over the weekend, I noticed quite a bit of negativity among the trend-following momentum folks, and I'm not getting the sense that they are being sucked back in by the strength today.

The toughest thing about this sort of action is that you can feel like you are missing out, because it is so difficult to be aggressive. I'm staying very conscious of my desire to force a few things because I'm bored with the action and want to do something.

Good markets can be defined in a number of ways. To me, the best markets are those that are volatile and provide good trading opportunities. That isn't what we have today.

July 14, 2014 | 10:39 AM EDT

Not Very Lively

  • This does not make for easy trading.

It was a good open, but the trading in the early going was about as exciting as yesterday's World Cup game. The S&P 500 is steady but the iShares Russell 2000 Index (IWM) is slowly slipping. Breadth is running quite strong with about 40 gainers to 13 decliners. All major sectors are in the green except for precious metals, which are taking a good hit.

The challenge with this market isn't that we are seeing a lot of selling pressure but, rather, the limited buying pressure. There just isn't much gap-and-run type action. We see a few pockets of action in such things as China Internet names, but it isn't sustained. While it isn't bad action, it just isn't lively enough to make for easy trading.

This weekend I was looking for technical setups, and I decided the best name I saw was Microsoft (MSFT). This isn't a stock that I trade very often, because it is such a slow mover. However, it is showing signs of becoming a "safe haven" for traders who are trying to put money to work but want to be conservative. It isn't very interesting but at least it is working.

IWM continues to sink as I write, and breadth is starting to slip as well. It is definitely summer trading, and that means we need to resign ourselves to the slowness and try not to force things.

July 14, 2014 | 8:24 AM EDT

A Bullish Spin on Things, for Now

  • But, per usual, do exercise caution.

Real difficulties can be overcome; it is only the imaginary ones that are unconquerable. --Theodore N Vail

We have some Monday morning optimism, and it's being attributed to a number of things, including the German World Cup victory. There is quite a bit of news coming up for this week, and the market is putting a bullish spin on it at the moment.

Across the pond, European Central Bank President Mario Draghi continues to roll out his version of quantitative easing with a program that stands to provide banks with nearly $1 trillion in cheap financing. In the U.S., Federal Reserve chief Janet Yellen may be moving in the other direction: Some are anticipating a more hawkish tone when she testifies before Congress on Tuesday and Wednesday. There is also economic news coming out of China, as well. Finally, we have the start of earnings season in the U.S. -- Intel (INTC), Yahoo! (YHOO), eBay (EBAY) and Google (GOOG) and several banks are all set to report results this week.

The major indices had a tough time last week, and we are probably seeing a bit of an oversold bounce this morning as well. I reviewed a number of charts this weekend, and the exercise wasn't particularly encouraging. While there are stocks holding at important technical levels, the lack of energy is quite notable. Small-caps and momentum stocks have been correcting much more deeply than the broader market has been doing. The iShares Russell 2000 Index (IWM) was down 3.8%, while the IBD 50 lost 3%. This action is quite similar to that seen in March through May, and that is making traders a bit nervous.

Ultimately it is the price action of individual stocks that determines market health, and right now there are a number of flaws here. The bulls will respond by pointing out how the market has consistently shrugged off any fears and worries. If you have become too defensive too quickly, you have missed out on the rebounds when the market has suddenly forgotten whatever had been troubling it.

What is interesting this week is the large number of potential catalysts it's set to bring. The bears will be particularly focused on Janet Yellen's testimony. QE is being unwound quickly, and many are afraid the market will be spooked as the plans for eventually raising interest rates becomes clearer. On the other hand, Janet Yellen has been very careful about committing to the timing of rate hikes, and she has been very market-friendly overall.

With the uptrend in the indices under pressure, my main concern right now is that attractive technical setups are quite sparse. There are quite a few pullbacks to support levels, but we are not seeing many vigorous bounces so far. The danger of a further rollover is quite high, and there are a number of potential excuses for more selling.

The good news is that, with the increased news flow, we should have somewhat better volume -- and that will help trading. The market is still in pretty good shape overall. Still, the potential for choppy action is high, but a number of negatives are nonetheless developing. As a result, caution will be needed.

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