The indices partially recovered from some intraday weakness but it felt like random, machine-driven trading today. There were some positives, particularly in biotechnology, but plenty of land mines as well. It was some of the most random trading in a while, and the major indices did a very poor job of indicating what really went on.
Some of the selling pressure was likely caused by delayed selling of last year's big winners for tax reasons. Now that the calendar has turned, they can book the gains and not worry about paying the taxman right away.
On the other hand, we also had buying of stocks that were big losers in 2014 and beaten down by tax selling before the end of the year. IBM (IBM), for example, traded higher today after concluding a very lousy year.
The fact that it was a Friday that felt like a Monday also contributed to the peculiar action. Many market players weren't ready to return to the market today and that allowed the machines to push the action around even more than usual.
Overall, the action was driven by a number of factors other than fundamentals or technicals. The economic news this morning wasn't very strong but that had little to do with the way that stocks moves today.
Next week we'll see normal action again. There are quite a few promising looking charts and once we are done with moves for tax reasons and portfolio rebalancing, they should stand out.
Rest up this weekend, the action is going to pick up very fast next week.
Jan. 02, 2015 | 10:38 AM EST
Biotechnology Remains Momentum Favorite
- But continued weakness in oil is causing concerns.
Market players are trying to start off 2015 on a positive note, but they are tired and sloppy so far. Breadth is solid, but volume is obviously thin again, and we have quite a bit of random action. It isn't helping that ISM and New Construction numbers are a bit weak.
As expected, biotechnology remains the momentum favorite, but continued weakness in oil is causing concerns. While low gas prices are great for consumers, it raises fears of deflation and slow economic growth, and it is the fallout in one of the brightest spots in the economy the last few years.
Too many traders stayed up too late watching football last night, and it looks like they are happy to flip into the early strength, and wait until Monday to do anything significant. We have some fast fades, and there are quite a few landmines tripping up folks on the first day of 2015.
I've done some flipping myself this morning, but I am adding a few small-cap biotechnology names, like XenoPort (XNPT) and Idera Pharmaceuticals (IDRA).
I do see quite a few charts that are set up well, but until volume picks up and all the end-of-the-year positioning is over, it is going to be tough to do anything very aggressive. We have very random action right now, and the risk of being jerked around is very high. Stay selective and manage positions carefully. We'll have to wait until next week before we can really start pushing.
JAN 02, 2015 | 8:12 AM EST
Bad News Is Good News
- Maybe this pattern will change this year.
Start by doing what's necessary; then do what's possible; and suddenly you are doing the impossible.
-- Francis of Assisi
Traders may be feeling a bit groggy this morning, but they are anxious for a good start to the New Year. Everyone likes to start strong, and the new money that flows into the market in the first couple of days of the year usually helps to keep the positive seasonality going for a few more days.
As I've discussed, we usually have at least one bout of profit-taking as the year comes to a close. That day turned out to be the last day of the year, but the market looks ready to shrug it off this morning. Positioning and profit-taking at the end are highly subjective, and aren't indicative of any major theme.
After the early inflows and initial excitement of a new year wear off, there is some selling pressure of stocks that had been big winners by those who delayed taking profits for tax reasons. On the other hand, there is the "January effect," which tends to help losing stocks sold before the end of the year to bounce back.
There are plenty of cross currents that have little to do with the big picture to drive us in the first days of January. That creates some randomness, but it does have a positive bias.
The main headline this morning is that bad news is still good news. In China, shares jumped following a weak PMI number, due to hopes that the Chinese government would roll out some form of quantitative easing. The Chinese economy has been struggling for a while, but investors have learned the power of QE from the Fed, and they are more worried about missing out on the supply of cheap money than they are about a poor economy.
One of the big themes this year will be a more hawkish Fed. So far, the market has had little concern about the potential for higher rates, mainly because central banks in Europe and Asia are stepping up to replace the Fed. This market has enjoyed the "bad news is good news" pattern for quite a while, and you have to wonder if that is going to start to change in 2015.
The bulls are optimistic that a stronger economy will keep the market running, but the bears are looking for higher rates and a less friendly Fed to put pressure on stocks. Trying to guess who wins that debate is a waste of time. We simple have to watch and see how things develop. Right now, the trend is still to the upside, and that should remain our focus.
We will have an odd season today, with some traders pushing for a good start, while many market players won't bother to come back to work until Monday. Volume will likely remain suppressed.
Oil and commodity are under pressure again, which will cause some chatter, but traders will be searching hard for pockets of momentum. Biotechnology has offered the best trading lately, and that will likely remain the main hunting ground.
Let's make 2015 a great year.