After the move the market has made over the last four days, a little backing-and-filling is usually healthy. But in the new world, in which all bounces are V-shaped, it's a bit suspect. While the DJIA and S&P 500 were negative, the Nasdaq managed a slight gain and the IWM was flat. Breadth was lackluster with 2,600 gainers to 3,200 losers.
That isn't bad, and there were a few pockets of momentum In Starbucks (SBUX) and Skyworks (SWKS) but leadership remains woefully thin. We could use big stocks and technology names to step up and attract the hot money.
The big issue next week will be whether the bulls have the juice to produce another V-shaped move. There is plenty of optimism that the pattern will continue, and it is hard to argue with it since it has been so consistent for so long. We have a slew of earnings reports due, including Apple (AAPL), Google (GOOGL) and many other key names.
I believe it is highly likely that we are going to have a day of reckoning fairly soon, but that is just a theoretical gut feeling until there is some price action to back it up. For now, the bulls are in control and they are playing like a quarterback with a deflated ball. Many don't like it much, but you'd be fool to bet against them.
Have a great weekend. I'll see you on Monday.
Jan. 23, 2015 | 10:55 AM EST
Eyeing the Semis
- That group looks the most interesting this morning.
Virtually every major move by central bankers in the last five years has not only produced quick market pops but also led to sustained upside rallies. We don't just see "one and done" action. Market players greatly fear being left behind as more cheap money is printed, and they simply refuse to let the market pull back.
The market action is a bit slow this morning, with breadth running about 2,400 gainers to 2,950 decliners, but there is underlying support and I'd be surprised if the bears were able to dig their claws into this action. The key element of the V-shaped moves is the very strong underlying support. Dip buyers simply don't let the market come in very much before they jump in.
The biggest negative of this type of action is that if you aren't a chaser, you are going to struggle to put money to work. Many fund managers would never chase something like Starbucks (SBUX) at this point. Their discipline is to buy pullbacks or at support levels, and they simply don't have much of a chance to do that.
Biotechnology names are struggling but we have bounce action in oil and solar energy. The group that looks the most interesting is semiconductors. Tower Semiconductor (TSEM), a recent Stock of the Week, is up nicely due to positive sympathy with the Skyworks (SWKS) report. Inphi Corp. (IPHI), which has been on watch for a while, is finally coming out of a base, and Radware (RDWR), a Sharkfolio holding, is bouncing back from yesterday's weakness.
Once again, the close today is going to be key. If this market is unable to build on yesterday's spike, that will be a major change in character.
At the time of publication, Rev Shark was long TSEM, IPHI and RDWR, although positions may change at any time.
Jan. 23, 2015 | 7:17 AM EST
The V-Shaped Bounce Is Back
- The million-dollar question is: will it stay?
The more things change, the more they are the same.
Once again, the market demonstrates that the "sell the news" trade just doesn't work when the central bankers go to work. The ECB did an excellent job of managing expectations and after a brief dip it was up, up and away once again. The million dollar question now is whether we can keep on running.
While many market players believed that the V-shaped bounce was unlikely after the poor start to the new year, we have yet another one under way right now. The indices are now up four days in a row and have created a big supply of underinvested bulls, uncertain bears and plenty of potential dip buyers. Those are the main ingredients of V-shaped moves and those forces only become more powerful as the market powers higher.
While indexers and buy-and-holders love the V-shaped moves, they are much more problematic for traders. The big problem is that the action never really creates very healthy charts. There is little basing, and we don't see the traditional follow-through that traders look for after a correction. We just go straight down and straight back up, which never makes for easy entries, especially if don't like to chase things as they head into resistance levels.
This is exactly the sort of action that has doomed so many fund managers to underperformance. They play strong defense, but then are unable to adjust quickly enough to reload for the rallies like yesterday. Even worse is that many keep looking for things like a "sell the news" reaction and grossly underestimate the potential for another V-shaped move.
The ball is now solidly in the bulls' court, and if the pattern holds, this uptrend is going to persist. It would be a major change in character if we underwent a sharp reversal. It is earnings season, so we have some additional catalysts for individual stocks to keep things interesting, but the main dynamic for the market now is finding long exposure due to fear this market will run away to the upside again.
From a stock-picking perspective, the biggest issue right now is the lack of good quality leadership. Biotechnology stocks have been the primary leader for a while but are starting to look tired and are increasingly erratic. Yesterday we saw money move back into some of the big cap technology names like Google (GOOGL), Amazon (AMZN), Alibaba (BABA), etc. Those stocks benefit from fund managers that have big money to put to work and need high levels of liquidity.
Early indications are flat to slightly positive, but you can bet that after yesterday the dip buyers are lurking. Putting money to work is the big challenge, especially if you don't like to chase, and that will keep a bid under this market.