Bad News Is Still Bad News

 | Dec 05, 2013 | 4:35 PM EST
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We didn't see crazy swings today like we saw yesterday. Instead, the market gapped down slightly and then slowly crawled lower the rest of the day. It was a very dull session with many market participants reluctant to do anything significant in front of Friday's jobs news.

The main fear is that we might have a situation where good news is bad news because it means that the Fed may start to taper sooner rather than later. But bad news is bad because it means the economy still stinks and the Fed isn't going to do anything additional. For a while, the bulls were enjoying the "All news is good news" nature of economic reports, but I'm concerned that the reverse may be kicking in as QE comes to an end.

While the S&P 500 now has a five-day losing streak, it is only down about 1% from its all-time high. It isn't a very deep correction, but sometimes the market can have an effective correction by simply not doing anything for a longer period, rather than pulling back sharply.

It has not been a very good trading environment, but we still haven't seen any major damage to the uptrend. We have the potential for the jobs report to shake it up tomorrow, which wouldn't be a bad thing after the unexciting action today.

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

Dec. 05, 2013 | 1:44 PM EST

Bereft of Emotion

  • Half-hearted selling means bloodless machines push the action.

From a trading standpoint, a slow and steady drip of selling offers less opportunity than a big, panicky drop. Strong emotions make for better volatility, and what we have seen for five days is just half-hearted selling that doesn't make for good lows.

One thing I've missed the last few years is the emotional response of individual traders to market developments. We used to have real greed and fear at times, but now it seems like it is mostly bloodless machines pushing us around rather than traders battling their feelings.

There isn't anything particularly interesting about the trading today. There's a slight negative bias and trading is in a tight intraday range. Breadth is even on the Nasdaq but running about 1,050 to 1,800 on the NYSE. There's strength in energy, steel and chips, while biotechnology, solar energy and precious metals lag. A few big-cap momentum names are in play, like Twitter (TWTR) and Las Vegas Sands (LVS), but that is quite limited.

I see little to do other than be patient and keep looking for individual ideas. The big picture isn't particularly good, but we're experiencing the sort of washout that makes you think we may have a good bottom.

I suspect part of the reason it is so slow is a hesitancy to go into the jobs news in the morning with big positions. A strong report seems to be anticipated, and maybe that will give us a selling crescendo. I don't have any special insight into the news, so I'm not betting on it.

Dec. 05, 2013 | 10:24 AM EST

Momentum Is Skittish

  • And chasing is limited.

The market is struggling with the tapering issue again and that's keeping buyers contained.

Better-than-expected weekly unemployment claims were dismissed due to the effects of Thanksgiving, and a better-than-expected revision to GDP was dismissed due to a big inventory build. Factory orders just came in a bit soft, and that is reassuring buyers that tapering isn't going to happen soon.

Don't forget, we have a very important monthly jobs report tomorrow, which is really the key as far as the timing of tapering. Right now, there is still evidence that the economy is still too soft for the Fed to do much, but the movement in bonds suggests that that worry might be changing.

After a few days of weakness, conditions are oversold enough to attract dip-buyers, but momentum is skittish and chasing is limited. I have cash to put to work and I've been nibbling at a few things, like Broadcom (BRCM), U.S. Silica Holdings (SLCA) and Fonar (FONR).

The jobs news has the potential to move the market Friday morning, so keep that in mind today as you position. My plan is to leave room for additions on volatility tomorrow.

Dec. 05, 2013 | 7:31 AM EST

Choppiness May Be Sending Signals

  • Such instability often indicates uncertainty indicative of a top.

There comes a pause, for human strength will not endure to dance without cessation; and everyone must reach the point at length of absolute prostration.

--Lewis Carroll

 The senior indices suffered their first four-day losing streak on Wednesday since September. This is only the fourth time this year we have had a stretch of selling that long, but so far it has been a very mild correction and is barely a blip on the overall chart.

What has been most notable about the recent action is how choppy it has been under the surface. On Wednesday in particular it looked mundane with the S&P500 barely changed, but intraday it was extremely chaotic with several sharp swings.

This sort of instability is often a sign of a growing uncertainty which may be indicative of a top. We continue to see good underlying support, however, and some aggressive dip buying, so I haven't been too concerned so far. The market needs to rest and consolidate, which is what we are doing. The danger is that it could develop into something more negative if the churning continues to build.

The primary explanation for the recent choppiness is concern that there is enough economic strength to justify tapering of bond buying by the Federal Reserve sooner rather than later. The jobs report on Friday is going to be particularly important as an indication of how quickly the Fed may act. Interest rates have been accelerating higher, so there is some obvious concern that the economy is improving enough to put pressure on bonds.

The other factor that has been driving this pause in the action is the high level of bullishness. We have gotten a bit too frothy, especially during Thanksgiving week, with many market players counting on traditional strength to end the year. There has already been dozens of discussions in the media about how strong the 'Santa rally' is going to be this year. I don't try to time the market using sentiment measures but many traders do and the recent frothiness is probably causing them to press a bit on the short side.  

While we have been struggling lately, I haven't been overly concerned about the pressure so far. It has been tricky to trade but it looks like just a healthy pause after a big run from early October. One of my complaints about the market this year is that we haven't had good consolidation to support some of the moves. It is helpful to see this play out. Ideally, it will give us a good foundation for an upside move to end the year. If we can scare some of the bulls a bit, it will be even better.

We have another quiet start shaping up, but market players will be looking to position in front of the jobs news on Friday morning. There is some major concern that a strong number is really going to increase the tapering fears.

Apple (AAPL) is gapping up on news of a China deal and Facebook (FB) is gapping down on news that it wasn't selected to be added to the S&P500. We have weekly claims, GDP and factory orders news on the economic agenda.

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