An afternoon rally pushed the indices into the green and brightened up the day, but it was a lackluster action without much excitement. There was a little weakness near the close, which is not a positive sign.
Once again biotechnology stocks led the charge, but they are increasingly volatility and becoming difficult to trade. Gold and chips performed well while retail, oil and solar energy brought up the rear. There were few pockets of momentum, but it was mostly drugs and biotechnology attracting interest.
We have some interesting earnings reports rolling in, which may add spice to the market, but for the most part we are on hold until the ECB/quantitative easing announcement Thursday morning. That it is going to be the catalyst for the next major move in this market. In the meantime, we have Netflix (NFLX), IBM (IBM) and Super Micro Computer (SMCI) to provide entertainment.
While the indices did manage to add upside to Friday's move, this sure isn't feeling like the old V-shaped bounce. We have so many crosscurrents right now, and the character of the action has definitely been undergoing a change. The bulls still have a good shot at regrouping, but it isn't going to be as easy as it was last year.
IBM and NFLX have good reports, which should help the mood a bit, but overseas markets are chaotic and overnight bets are difficult.
Have a good evening. I'll see you tomorrow.
Jan. 20, 2015 | 1:19 PM EST
Remember to Dump the Losers
- The wind is favoring the bears.
The action isn't terrible today, but it is pretty dismal.
There is no real life and it's precious metals that are leading, which isn't a good sign. Breadth is running a little better than 2-1 negative and if you are looking for action you are going to be disappointed.
What is most notable about the action today was that the opening strength was sold and there doesn't seem to be much anticipation of another big V-shaped move. We have plenty of earnings reports coming up, but the big event will the European Central Bank announcement early on Thursday. The market has rallied many times on their promises of a QE program, but this time it looks like it is being priced in, in advance, and that is helping to cause the sluggish market. There is no reason to try to get in front of the news when there is risk it may not be as good as expected.
The key in a market like this is to make sure you don't let poor positions run on you. Dump the losers and be very selective in making new buys. You have to remember that it is the overall market that provides a tailwind or headwind and right now the wind is favoring the bears.
I've yet to make a buy today but we'll see what may look attractive at the close. Right now the watch list isn't looking very promising.
January 20, 2014 | 10:25 AM ET
I've Been Selling on Strength
- And I am highly selective with buys.
It is always important to watch for a change in market patterns. One pattern we've seen quite often over the past year or so is the Monday morning gap and run. We have a gap-up open to start the week and rather than sell into the strength traders chase it to put on more exposure.
Today we are seeing some pretty severe gap-and-fail action so far. After the strong open it has been straight down action. With the bounce on Friday, there was hope that this was the start of our old pal the V-shaped bounce, but traders don't seem to have the confidence this time to keep pushing. As I discussed in my opening post, there are so many macro matters up in the air right now that it is hard to have a high level of confidence.
We are seeing this selling into strength much more often lately, which is a pattern we need to watch carefully. It isn't necessarily negative, but it does signal that the character of the market is shifting and that the V-shaped move may have seen its best days.
One negative today is that we are losing biotechnology as the primary leader. There is a negative article in the NY Times that is weighing on the bluebird (BLUE), Juno Therapeutics (JUNO), Kite Pharma (KITE) group, which is cooling things off.
So far I've been selling into the strength and am waiting for some consolidation before making some new buys. We are finding a little support as I write but I'm staying highly selective with buys.
Jan. 20, 2015 | 7:13 AM EDT
Bad News Is Still Good News
- At least that's the case judging by the Chinese numbers.
Follow the trend lines, not the headlines.
The action so far in 2015 has been a bit of a roller coaster ride, and it is promising to become even bumpier as cross winds around the world swirl.
Over the long weekend, stocks on the Shanghai China exchange dropped 7.7% as government officials attempted to rein in margin debt and speculative trading. Interestingly, the impact didn't spill over to other markets, primarily because there is intense focus on the anticipated announcement of a quantitative easing program by the European Central Bank.
German officials are still battling a big QE program, and there are some worries that compromises will contain the program that is announced, but market players are keenly aware of how QE impacts the market and few want to be caught short when the news is announced. Both Switzerland and Denmark have cut their currency pegs as they pave the way for this program to roll out.
We also had news that China's economic growth was slower than expected, but it seems to be priced in and also may be a prelude to more economic stimulus in China. Bad news is still good news in many places.
In the U.S., there is much debate still over how soon the Fed will commence raising rates. With interest rates still under pressure due to mediocre economic factors such as retail sales, there is no sign of inflation and many are wondering if maybe the Fed will push back its rate hikes.
In addition to all those macro-economic issues, the bulk of earnings season occurs over the next couple weeks. So far it is been mostly banks and Intel (INTC) that have reported and the results have been lackluster at best.
Technically, the indices had a decent bounce on Friday, but after a five-day losing streak we were due for a little relief. We are gapping up this morning, but overhead resistance is lurking. The recent market volatility has many bulls starting to wonder if maybe the V-shaped bounce action is starting to come to an end. We are in a good position now to start testing the resolve of the bulls, who have had so many quick and easy straight-up recoveries. There has been quite a bit of distribution in this market and plenty of breakdowns, which has market players feeling pretty cautious.
Another reason for caution continues to be the very narrow leadership. It has been almost all biotechnology for a while now. Some cracks are starting to appear in key leaders, which have become quite volatile lately.
The big danger in this market right now is that good stock picking will be trumped by big picture news. The Fed, ECB or Bank of China can easily move this market at any time. While it is unlikely they will do anything overtly negative, expectations for continued central banker intervention are very high and they could easily disappoint.
My game plan is to stick with selective stock picking and manage positions very closely. The main challenge will be navigating the headlines news and the best protection is to be in the best acting stocks you can find.
I hope everyone enjoyed the long weekend. It's time to go back to work.