What was most notable about the market this week was how choppy the action was. The indices barely moved, but we bounced around and switched directions just about every day. Typically, we'd gap up, sell off and then recover into the close. There was plenty of movement, but the indices ended nearly flat for the week.
The good news is that this action still produced plenty of good trading. We had some movement in China names early in the week and then the last two days biotechnology lit up after the stunning move in Intercept Pharmaceuticals (ICPT). Traders were beating the bushes looking for other potential biotechnology movers and it caused the sector to heat up.
What is most interesting about this action is the change in character from what we saw in 2013. More often than not, the market moved in one direction and stocks traded in a highly correlated fashion. So far this year we have seen a return to stock-picking, and it certainly has made things more interesting.
Earnings season begins next week with reports from some of the big banks and then Intel (INTC) reports Friday. But we still have another week before the action picks up. That is likely to shift the market action, but for now, it's been a good market for aggressive traders and stock-pickers. If you measure the market based on the indices, you won't see it, but I can assure that the mood among the short-term players is quite upbeat.
Have a great weekend. I'll see you on Monday.
Jan. 10, 2014 | 10:47 AM EST
Keep Digging for Trades
- But watch out for the landmines.
A worse-than-expected December jobs report took the market by surprise this morning. While the initial reaction was that it was good news because it means tapering may not come as quickly and interest rates will stay under pressure, it didn't last long as the root issue is that the economy still stinks.
As I discussed in my opening post, the market action has been extremely choppy and sloppy so far in 2014, and we have a continuation of it this morning. It is an odd mix again with positive breadth on the NYSE but poor action in the Nasdaq. Big-caps like Facebook (FB), Yelp (YELP), YY Inc. (YY) and Twitter (TWTR) are doing well while Apple (AAPL) and Google (GOOG) struggle.
The biggest negative is the pockets of momentum that have been so active to start the year are drying up. The movement in "junk" China names has screeched to a halt and other groups, like solar energy, are taking a break. The biotech names were the hot group yesterday, but that has narrowed considerably as the huge move in Intercept Pharmaceuticals (ICPT) is being digested. There are still select movers, but the themes aren't there.
I'm trying to get a few things going but there are a lot of landmines. I chased Perceptron (PRCP), which has good news with a "premium German can manufacturer." There is an inclination to force things because trading has been good lately, but I'm going to be patient and not force it.
Overall, it looks like the market is still in a sloppy trading range and I see no reason to be overly negative. The opportunities are still developing and, if we keep digging, we will find them.
At the time of publication, Rev Shark was long ICPT and PRCP, although positions may change at any time.
Jan. 10, 2014 | 8:37 AM EST
'Choppy and Sloppy' Trading So Far
- The big question is whether this action will persist.
I didn't want normal until I didn't have it anymore. -- Maggie Stiefvater
The market action so far in 2014 can be summed up as 'choppy and sloppy'. That volatility has been quite good for traders but it is a shift from 2013 when the indices seemed to move steadily upward without a pause along the way.
The big question is whether the action in the first six trading days is a change in character that will persist, or just a temporary shift as we consolidate the big move into the end of the year. The argument can be made that now that the Federal Reserve is tapering its bond buying we no longer have the conditions that promoted the endless liquidity that drove the market straight up for so long. But we don't have enough information yet to form a conclusion.
One positive of the slow demise of quantitative easing is that the market may return to more normal trading where individual emotions and fundamental news have an impact. When we have giant gluts of liquidity, stocks move simply because that cash has to be put to work. That undermines the logic of a market that is normally driven by good old-fashioned supply and demand.
We haven't heard much about tapering so far this year but this morning we have the monthly jobs news, which is going to put it back in play. A strong report will raise concerns about the pace of tapering. The Fed has been careful in saying that it maintains its flexibility, but any signs of heat in the economy is going to cause a reaction.
Many market players were surprised when the market jumped higher when the Fed announced that they would start tapering. The thinking was that it was going to be a negative, but the market seemed to focus more on the fact that there is economic employment.
Many traders are tired of central bank intervention and are happy to see the Fed start to make its exit. Many on Wall Street lagged as they never fully embraced the power of the Fed; now they are able to return to the considerations that used to matter before the Great Recession.
Europe is trading up sharply this morning as there seems to be high expectations in front of the jobs news. I'm not sure of the logic there, but the good news is the choppy action of the market so far has set up a good technical base for a move higher on positive news.
Alcoa (AA), kicked off earnings season with a disappointing report but it really is not a stock that has any correlation with earnings season. We have a number of banks reporting next week but the great bulk of reports don't start to roll in until after the Martin Luther King Holiday on January 21.
We'll see what the jobs report brings. Biotechnology should continue to be hot after Intercept Pharmaceuticals (ICPT) received an amazing price target of $872 from Bank of America.