The Market Meanders

 | Jul 24, 2014 | 5:10 PM EDT
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The indices finished close to flat, the media celebrated new all-time highs and traders complained about the lack of interest and excitement. In other words, nothing has changed. It is the same sort of action we've had for quite some time. The headlines sound positive but the trading is a slog.

What I found most interesting about the action today was how more and more traders seem to be reconciling themselves to the fact that the market just doesn't trade the way it used to. There are jokes about how irrational it can be, but many have simply given up on the idea that maybe things will eventually revert to how it was when interest rates weren't at zero.

Regardless of the dynamics at work, the market continues to meander as if it doesn't have a worry in the world. Good earnings reports trumped poor economic reports, and no one is brave enough to bet against this market. There are plenty of negative non-confirmations for the strength, such as the poor action in small-caps, but they are irrelevant so far.

You can find plenty of reasons to worry if you are so inclined, but what works best is to keep plugging away.

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

July 24, 2014 | 1:09 PM EDT

Logic No Longer Applies

  • The best way to deal with the market's euphoria is to simply accept it.

Complaints and skepticism continue as the joyless bull market makes another new high. Poor economic reports make no difference, and you can forget all those other little negatives that the bears constantly point out.

Sue Berge, who is considered to be a pretty good market timer, gave up on her call for a market correction today. The negative divergences that she sees simply don't work anymore. After dozens of low-volume, V-shaped moves to new highs, her surrender comes as no surprise. It's irrelevant that the number of new highs is faltering as the market goes higher and that we never seem to have any confirmation of the action with a surge in volume.

Poor action under the surface has no predictive impact on this market. That is great for the perma-bulls but a source of constant frustration for traders who used to be able to apply logic and time some ups and downs.

This look of market euphoria has been a theme for a long time now, and the best way to deal with it has been to simply accept it. Similar to Sue Berge, there comes a time when you just have to admit that the logic that used to work no longer applies in a market that is driven by cheap cash and no other investment alternatives. If you are putting money into the market, where do you put it?

As is normal in this market, the little dip after the open was quickly bought, and we moved back to the highs of the day. Once again, though, we go flat and don't make any further progress. The action looks pretty good for the indices, but the trading action in many individual stocks is still very mixed.

It would be nice if we had some good, old-fashioned celebration to go with the new highs, but I suspect that what market players really want is a return of logic, and they aren't feeling much of that.

July 23, 2014 | 10:20 AM EDT

Bad Vibes From This Market

  • There is simply too much inconsistency.

Facebook (FB) is cooling off a little after its gap-up open, and there is a good amount of choppiness out there. Breadth is much better on the Nasdaq today than it was on Wednesday, and the iShares Russell 2000 Index (IWM) has some relative strength, but many traders are complaining about how inconsistent the action has been in many stocks. As someone has mentioned in the comments, you can be wildly bullish but still get killed if you are not picking the right names.

If you base your view of market health on the S&P 500 and other major indices, you will have a much different attitude about the market than you would if you were considering trading action. The bullish market-timers have been quite right about the major averages, but the overly bullish traders have been stung quite often, unless they have been very selective with their stock picks.

As Helene Meisler has alluded to this morning, with her discussion about the low number of stocks making new highs, the action in individual names is quite different from what is happening in the indices -- which explains the lack of giddy sentiment you'd expect to see. Those timing the market need to be very bullish, but stock-pickers must be much more balanced right now.

The market is losing steam as I write: The S&P 500 is in the red now, and breadth has moved to negative. I'm trying out a few trades in things, such as Leju (LEJU), Vasco Data Security (VDSI) and Ruckus Wireless (RKUS). But, as I commented Wednesday, I do not like the feel of this market. There is just too much inconsistency, and things that look good one minute can get slammed the next. We really need the market to take a bit of a hit in order to clear the air.

July 23, 2014 | 8:08 AM EDT

Very Choppy Under the Surface

  • Still, a bearish bias sure isn't working very well.

If your actions inspire others to dream more, learn more, do more and become more, you are a leader. --John Quincy Adams

Good earnings from a few key big-cap names are driving the S&P 500 to new all-time highs, even as the action in many smaller stocks remains quite mixed. Facebook (FB) is picking up this morning where Apple (AAPL) left off Wednesday. As a result, money is flowing into the key growth names, and there is good leadership, and that is all the indices need to keep them running.

The tricky thing about this market is that it is the underlying action is quite inconsistent. On Wednesday, while the buyers were celebrating Apple and some biotechnology names, Nasdaq breadth was actually negative. It was very easy to be whipsawed in some of the smaller names, which may have looked OK before a sudden reversal among disappearing bids.

The action in small-caps looks completely different from what we're seeing in the S&P 500. Market players prefer safety right now, and they would rather park money in names such as Apple and Facebook, which still have fairly reasonable valuations. In many ways, this is similar to what happened back in March and April, when the senior indices held up while more speculative names came under severe pressure.

This morning there are lots of jokes about Federal Reserve Chair Janet Yellen's recent comments that social media and biotech may be overvalued. Biotechnology ramped up huge Wednesday, and now social media is coming to life via Facebook Thursday morning. It goes to show how ill-advised it is for the Fed to venture into this area.

So, where do we go from here? For one thing, the weakness under the surface in many small-stocks makes me nervous. I didn't like Wednesday's poor performance in many names, but the rotation into big-cap growth is on. The money is flowing into big-caps with good earnings, and stocks such as Facebook, Apple and Microsoft (MSFT) can keep the indices running.

So, it is tiresome cliché, but this remains a market for stock-picking -- not one for timing. But, again, upside momentum remains very choppy. We definitely haven't seen any "V"-shaped action this time, unlike much of the previous recent action, and that is one of the biggest shifts we have seen in a while. This actually may be a sign that some of the Fed-created artificiality is coming to an end. Stocks are trading more on their individual merits, rather than on a flood of cheap capital.

Overall, it is tough to complain about the health of the major indices. They don't just suddenly fall apart when making new highs. The underlying action is much more problematic, and even Investor's Business Daily still has the market rated as "under pressure." A few good stocks are certainly covering up some problems.

All that said, a bearish bias sure isn't working very well.

Facebook is going to help keep sentiment positive, and there are quite a few other good earnings reports as well. The trick right now lies in avoiding the choppiness of the underlying action and in sticking with the stocks that are viewed as "safe." That doesn't necessary mean cheap or technically weak. Money is looking for a place to go, and right now things such as Apple and Facebook hold the most appeal.



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