Great Trading for 'Bots

 | Aug 21, 2013 | 4:25 PM EDT
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The big event today was the minutes of the July Fed meeting, but it really didn't matter. Market commentators were intently focused on any hints as to the timing of the tapering of bond purchases and tried to make profound observations, but we really didn't learn anything new. It was a meaningless news event, but it was a great catalyst for wild computerized movement.

The standard scenario on news events these days is to take out a key technical low to the downside. Today, it was the intraday low at $164.57 of the SPDR S&P 500 (SPY), which triggers sell stops and a spike down. The buy programs then load up and take indices straight back up through the day's highs, which triggers the buy stops and squeezes the shorts.

Typically, the action holds up well, but today it immediately reversed and went straight back down. There was nothing rational about the movement, and, rather than try to explain it based on the news, we should just accept it as the way the market trades when there aren't many humans involved.

The news was a nonevent, but it makes for good trading for computers and folks who trade in five-minute time-frames. Did we really learn anything today about the Fed's intentions? I don't think so.

Despite the games, the big picture remains unchanged. The indices are still struggling and the weak close sure doesn't help. The buyers are unable to generate sustained upside momentum, and it doesn't much matter that we are oversold. Stay defensive.

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

Aug 21, 2013 | 2:23 PM EDT

Fed Impact Could be Short-Lived

The market does not like the minutes of the Fed's July meeting. The problem appears to be the headline that there is "broad support" for Ben Bernanke's tapering timeline. His timeline was to start tapering in September, but a number of recent comments by Fed members indicate that may be premature.

The issue is whether there has been any change of opinion in the last three weeks. The market is acting like there hasn't been, but I think we'll soon hear some comments about how they will hold off on tapering and we'll bounce back. I sold my ProShares UltraShort Russell 2000 (TWM), position and I am looking for a bounce to develop.

I don't think there really is any significant news and the market will shrug it off and focus on other things very quickly.

Aug 21, 2013 | 8:32 AM EDT

Watch the Reaction

  • It's more important than what the Fed says.

The market is treading water as we wait for the minutes of the Fed's July meeting. Usually, the minutes aren't that important as they are old news, but this time the market is intensely focused on any hints about tapering, so every word will be analyzed.

The bond market continues to signal that tapering is coming, but the issue is whether the equities market is going to price that in or keep hoping that the Fed will continue supporting the market with talk of being accommodative.

The Fed seems to be losing its ability to talk up this market, and there is danger that any discussion of tapering in the July minutes will spook the market, which is already struggling. Volume is low and breadth is poor, but some momentum names continue to hold up.

I'm doing very little. I don't see signs of sustained upside momentum that I want to chase, and most of the names on my watch list have the potential for more downside. One name on my list that is acting well today is BioTelemetry (BEAT). It has a $15 target from an analyst and I'm slowly averaging in. NQ Mobile (NQ), my stock of the week, also continues to act well, but I've sold it down a bit as volume runs light.

We'll see what happens with the Fed minutes soon, but keep in mind that it's the reaction, not the news, that's important.

Aug 21, 2013 | 8:32 AM EDT

Is It Different This Time?

  • Not if you believe in the power of the Fed.

The measure of intelligence is the ability to change. --Albert Einstein

Will the Fed ride to the rescue and deliver another V-shaped market bounce? That is the million-dollar question as we await the release of the Fed meeting minutes from July.

Over the last couple of years the pattern of the market has been to quickly recovery just when it looked like it was on the brink of an ugly breakdown. Invariable it was dovish comments from the Fed just in the nick of time, and once it started to bounce it just keep on running higher. We saw straight-up moves that forced bulls to chase and bears to cover.

Here we are again, right in the position where the Fed has saved us so often. The indices have been struggling for the past week and are starting to cut through key support levels. Investor's Business Daily has declared that the market is undergoing a correction and momentum money has been moving to the sidelines.

Market players were hesitant to embrace yesterday's bounce and, technically, it looks like time for increased caution. What makes it difficult is that optimism has tended to payoff and if you are too bearish too quickly, you end up being left behind when the market goes straight back up.

Is it different this time? Is the Fed losing its ability to keep supporting this market? The bond market is acting like it has lost confidence in the Fed and it seems to be a done deal that tapering will occur sooner or later.

If you believe the technicals, there is little choice but to stay cautious. But if you believe in the power of the Fed, you have to be leaning toward a quick market recovery. The fact that we are in the middle of the slow summer trading period only makes it tougher.

I'm dealing with this by staying with some longs and not doing anything aggressive on the short side. I have a high level of cash I'd be happy to deploy, and a good number of stocks on my watch list. If the Fed boosts again, I'll be putting money to work quickly.

The bears keep hoping for a deeper correction and many believe that things are aligning for that to occur. Of course, they have been thinking that all year and have been consistently trapped when it bounces back.

Stay cautious and keep an open mind. Flexibility, rather than dogmatic bullishness or bearishness, is the way to navigate this market.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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