Pockets of Action Are Narrow

 | Jul 29, 2014 | 4:45 PM EDT
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Perhaps it is due to the fact that they have lagged so often lately but the bright spot in the market today were small-caps. The iShares Russell 2000 (IWM) finished in the green while the major indices were all in the red. The small-cap outperformance helped enough to push Nasdaq breadth into positive territory while the NYSE was solidly red.

It was a nice change of pace but it doesn't justify wild bullishness. In fact, it is exactly the sort of action that will trap bulls who are too quick to believe that it is a lasting change in character. Small-caps have been hit too hard for too long for anyone to believe that one day of outperformance is going to lead to more of the same.

Twitter (TWTR) earnings are out and the stock is blasting higher on better-than-expected numbers and strong guidance. That is going to help Facebook (FB) and improve sentiment but the big news tomorrow will be the Federal Open Market Committee (FOMC) interest rate decision. It may not be very surprising news but it will be a catalyst for some movement regardless.

The market is still lacking in energy and the pockets of action are narrow. Twitter's report is the sort of thing we need to stir it up a bit. Overall, the market is not in bad shape technically, but if we don't see more action soon, it is going to be a very slow and tedious summer.

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

JULY 29, 2014 | 2:02 PM EDT

Watch Out for a 'Suck-In'

  • I'm keeping stops tight and taking partial profits where I can.

Some of the speculative small-caps I've mentioned lately are doing well today. Tarena International (TEDU), BioFuel Energy (BIOF) and Leju Holdings (LEJU) are making good moves on volume, but many traders are distrustful of the action. We have not seen very good follow-through lately and that has depressed the inclination to chase. Typically we will see good reports during earnings season that cause a gap and run, but while there have been some gaps, there haven't been many stocks that keep going. Skechers (SKX) is one but there aren't many.

We'll see how the close goes, but it is encouraging to see small-caps act a bit better. It does concern me that it could be a "suck in" before another reversal, so I'm keeping stops tight and taking partial profits where I can.

JULY 29, 2014 | 8:21 AM EDT

Not Enough Conviction

  • The action is too slow to trust.


The market is slow again, but the bias is positive and that is sucking in some money from the sidelines. Breadth isn't quite 2-to-1 positive, but there's a bounce in biotechs and chips. Precious metals are lagging and Facebook (FB) and Apple (AAPL) are keeping momentum names contained.

The buying isn't very aggressive, with a little buying to put points on the scoreboard. There is green, but not a lot of big movers.

Tarena International (TEDU), which is a previous Stock of the Week, is coming off a base with decent early volume. This Chinese education firm specializes in computer trading. BioFuel Energy (BIOF) and Bluebird Bio (BLUE) are also popping up on my radar.

The problem is that the action is too slow to trust that momentum will be sustained. As a result, traders are flipping quickly, and that kills developing moves. There isn't enough conviction to keep pushing.

JULY 29, 2014 | 8:21 AM EDT

A Bit of Drama Would Be Nice

  • Perhaps some fireworks will come with the Fed decision.

When I'm good, I'm very good, but when I'm bad, I'm better. --Mae West

How do you define a "good market?" Many people simply look at the major indices and conclude that up is good and down is bad. Some people are content if there are some key stocks that are acting well and others are happy as long as there isn't anything overtly negative.

Traders such as myself tend to characterize the market based on the amount of opportunity it is offering. When there are lots of setups and good volatility, that gives us the chance to make some money -- and that is a "good market."

Using that definition of the market, it is pretty bad out there right now. There simply aren't many good trades. Volume is light, movement is random and emotions are mixed. We see it reflected in the indices, which are holding up because of a few good big-cap names. Under the surface breadth is weak, small-caps are acting poorly and there is very limited volatility. We've seen a bit of movement on some earnings reports, but even the stocks that have gapped up on good news stall out fairly fast.

I'm sure there are other traders who will object to my view that there isn't much opportunity right now. Different styles will produce different results. But there can be little debate the low number of setups and the depressed volatility. Yes, the indices are looking OK, but unless you are just passively sitting in some index ETFs, they aren't offering much.

While we can moan and whine about the market action, the best thing we can do is simple stay attentive and wait for conditions to change. They always change eventually, and if we just stay with it we will find that the level of opportunity will ultimately increase.

I admit that I'm rooting for some drama to shake things up. Perhaps the Federal Reserve interest-rate decision Wednesday will provide a catalyst. There has been more talk about the potential for increases in rates, which will have a big impact on the market at some point, but many market players are still quite content that it is a long ways off. Beyond that, there is also the jobs report, which is set for release on Friday

Overseas markets performed well last night, and Asia indices gained further momentum. We have a slightly positive open on the way, as well as some earnings reports to reflect on, but we are likely going to have very slow trading once again as we await the Fed decision Wednesday afternoon.

I'd really prefer to be much more optimistic and excited about this market -- but, until we have some stronger emotions in the mix, it is going to be tough.



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