Ready to Rally?

 | Dec 06, 2013 | 4:05 PM EST
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For the past week, the market has struggled as we awaited the monthly jobs reports. Pundits told us the weakness was due to worries that the numbers would be strong and that would cause concern that the Fed would taper its bond buying sooner rather than later.

The numbers were indeed strong, but the market has apparently forgotten about its tapering concerns. Bonds, on the other hand, continue to be weak and are clearly indicating concerns about higher interest rates in the near term. But maybe equities are just tired of hearing about tapering and are ready to rally because of a decent setup.

The low-volume, five-day pullback was in fact a very good setup for the move today. The market consolidated nicely and probably reduced some of the overt bullishness. We didn't have any real technical damage at all, so buyers were ready to jump in and make a run.

Despite the big move in the indices, I heard plenty of complaints from traders today who had a hard time keeping pace. The biggest challenge of this market is a lack of clear leadership and strong themes. There certainly are pockets of momentum, but they are random and easy to miss. For example, Apple (AAPL), Facebook (FB) and Twitter (TWTR) have been relatively strong lately, but all three are in negative territory today.

Despite today's big moves, the indices still have work to do to recover the recent highs. Volume is very impressive, which suggests we may not have the momentum we need to retest those levels. But volume has done a poor job as an indicator this year, and we all know that we are at the height of positive seasonality.

A rally to end the year certainly seems logical and easy, but the market never likes to be taken for granted. I suspect we will have plenty of work to rack up gains in the waning days of the year.

Have a great weekend and check out of my Saturday column about karma and the market.

Dec. 06, 2013 | 10:11 AM EST

No Traction

  • The bulls seem hesitant to chase the gap-up open.

The better-than-expected jobs news has given the market a strong gap-up open with breadth running near 4:1 positive, but it hasn't gained any traction intraday. In fact, market players are hesitant to chase strength.

The bears were hopeful that good jobs news would trigger worries about an acceleration of tapering by the Fed, but that idea is not taking hold. We've seen a delayed reaction to that that idea in the past, but the bears are probably more worried about being squeezed than they are about market logic.

I have plenty of cash to work with and I'm looking for inventory. It hasn't been easy to put money to work lately, but I believe we'll see good ideas as the day progresses. U.S. Silica Holdings (SLCA) and Broadcom (BRCM), which I mentioned yesterday, both closed poorly but they are back on track today. I'm adding to SLCA and I will average in as it develops.

One thing that has changed this past week is the lack of sustained upside momentum. We'll see if today's news changes that and causes a resumption of the uptrend, but the bulls seem hesitant.

Dec. 06, 2013 | 7:37 AM EST

A Tricky Environment

  • We'll have to vigilant and manage positions carefully.

Cash: I've got good news and bad news.

Tango: What's the bad news?

Cash: We're almost out of gas.

Tango: What's the good news?

Cash: We're almost out of gas!

--Tango and Cash

The market has chalked up a five-day losing streak as we await the important jobs news this morning. The loss has been quite minimal overall but it has been a while since the indices have stayed consistently weak for so long.

Market pundits have been attributing the recent weakness to concerns about the Fed tapering its bond-buying. It is widely anticipated that the November jobs report, which is due this morning at 8.30 a.m. EST, will have a significant impact on what the Fed might do. Raising additional concerns has been the bond market, which has seen yields moving up again as we have better-than-expected economic reports such as the gross domestic product revision Thursday.

The bulls are comfortable that the economy is still slow enough to keep the Fed from making any policy changes soon. But the bigger concern is whether bad news might actually be bad news if the Fed merely delays tapering, rather than give us more of it. There seems to be widespread agreement that the Fed is pretty much tapped out, and that the best we can expect from it in the future is for a continuation of the current level of bond-buying.

The good news is that the market has needed a rest. Although the pullbacks are quite mild, they have served as effective consolidation. This gives us a pretty good-looking technical pattern to support a run into the end of the year. The market is no longer terribly extended or overbought, but you still have to be willing to buy stocks that have made big moves this year if you want to put money to work.

Probably the most troubling thing about the market recently has been the frothy sentiment. We have been hitting very extreme levels in the sentiment polls and talk about a "Santa rally" in the media will make even the bulls cringe.

I suspect the bulls are itching to buy the jobs news today, very interesting psychology will be at work. For quite a while, all news was good news, because if there was any weakness we could count on the Fed to backstop the market and keep the cheap money flowing. Things are shifting now as the focus turns to not whether the Fed will taper off its buying, but when. We all know it is coming. That means that weak economic news still keeps the Fed in play but it isn't the same positive that it used to be.

A strong jobs report this morning is likely to get a knee-jerk negative reaction, but I'm not so sure a poor report is going to be seen as the same positive it was in the past. It is very tricky environment right now so we'll have to vigilant and manage positions carefully.

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