It was a successful day for the bulls, with better than 2-to-1 positive breadth and a close at the highs. Still, the action had an odd feel, which may have been a function of snowstorm worries in New York City. It just felt like there wasn't a high level of commitment and involvement with a market that acted extremely well.
While the politicians and news media can be quite hysterical about weather, my experience with storms in Michigan was that it often had a holiday-like feel if you don't have to travel in it. The kids were happy they had a day off from school, and many people were looking forward to staying at home for the day. So, in a way, it was a bit like holiday trading today and that may well continue tomorrow.
Not only do we have that mood dynamic working for us, but we also have our good buddy, the V-shaped bounce, doing its thing again. This is classic V follow-through behavior that sucks in more underinvested bulls and skeptical bears.
The biggest problem with this market is that it is very easy to harbor concerns due to increased volatility and macro events. Also, earnings reports have the potential for movement as well.
Many market players are hoping that maybe the NYSE will be closed tomorrow, but the only thing they care about is volume. There hasn't been a weather-related closing for snow since 1969.
The key right now is that the uptrend continues. The volume might be light and there are plenty of negatives if you look for them, but all that matters is that buyers still want to buy.
Have a good evening. I'll see you tomorrow.
Jan. 26, 2015 | 1:25 PM EST
In Wait-and-See Mode
- The market is digesting news and looking ahead to earnings.
There are minor gains in the indices, things are slowly drifting up and breadth is solidly positive, but there isn't much juice. The dip buyers are providing support, but the pockets of momentum are mild.
Action like this is symptomatic of a V-shaped move. It is strong enough to entice underinvested bulls and frustrate bears but technically weak enough to help create a "wall of worry." V-shaped moves are largely a function of mistrust of the upside. The more it is questioned the more underlying support it helps to create. There have been some good bounce trades, particularly in biotechnology, but it has been narrow.
My impression is that we are in wait-and-see mode while the market digests news flow and looks ahead to earnings reports. So far the conditions continue to favor the bulls but I'm not finding nearly as much as I'd like. That might be due to a lack of being in tune with the market, but at least the majority of stocks that I'm working with are acting well. A higher level of optimism may be warranted but I can't shake off some of the subtle negatives that I see.
Jan. 26, 2015 | 10:25 AM EST
The Buyers Are Pushing
- But volatility makes it hard to trust the market action.
A gap down open on Monday morning is so automatic that market players didn't bother waiting for the open. Indices were back to even just before the bell rang. With big bounce already in hand, that resulted in flipping to start the day. We've now digested that pressure and the market is slowly working its way back to even.
Breadth was 2-to-1 negative at the open but are now almost even on the Nasdaq. Biotechnology has reversed from a weak start and bottom fishing in key names that have been under pressure lately -- Juno Therapeutics (JUNO), Kite Pharma (KITE) and bluebird bio (BLUE). Solar energy is exhibiting relative strength again, while chips and precious metals are weak.
The buyers are pushing and there seems to be some performance anxiety, but volatility is making it hard to have a high level of trust. I'm not convinced that it is smooth sailing to the upside, but there is underlying support, which is a good sign.
I've been doing a few smaller trades recent Stock of the Week, Zeltiq Aesthetics (ZLTQ), as well as Novatel Wireless (MIFI), Inphi (IPHI) and a few others. I continue to find it very challenging to do anything very aggressive.
We'll see how well the action holds as the day progresses, but the dip buyers are showing continued interest, and that is always key.
Jan. 26, 2015 | 7:45 AM EST
We Lack Quality Leadership in the Market
- The new highs don't contain much quality.
Small shifts in your thinking, and small changes in your energy, can lead to massive alterations of your end result.
-- Kevin Michel
Early indications are well off overnight lows, but we are still looking at a negative open following the election in Greece. There was no surprise by the outcome, but the magnitude of the win did surprise the markets a bit. The pundits are out in full force saying it is no big deal. We'll let the market determine that.
We have an extremely busy week of news coming up. There are a number of very important earnings reports from the likes of Apple (AAPL), Google (GOOGL), Microsoft (MSFT), Amazon.com (AMZN), Facebook (FB), Alibaba (BABA), etc. We also have the FOMC interest rate policy decision on Wednesday, as well as slew of economic news.
In addition to the news flow, we still have the fallout from the ECB's quantitative easing decision. So far it has been embraced by the market as a positive and many bulls are looking for another V-shaped move to take hold. But the action is a bit different than most of our previous bounces as there is greater volatility and much more new flow that is having an impact.
The big issue for market players is whether we are going to see another move back to the December highs. There is very high level of optimism in certain quarters that this market is going to repeat the pattern we've seen so often, but there is reason for doubts.
One of the biggest negatives right now is simply the lack of quality leadership. We've had good strength in biotechnology for a while and last week we saw some bounces in names like GOOGL, FB and AMZN, but there really is very little big stock leadership. Strong markets typically have some key names that are leading and that helps to drag other stocks up as well. While the number of new highs is still quite high, it doesn't contain much quality.
Weak oil continues to be an issue and now that United States Oil (USO) is breaking support at $17, there are those who believe this is going to weigh on the broader market. Poor earnings from UPS (UPS) are causing some concerns, but we shall see what the major reports will bring this week.
While I'm optimistic that the bulls are going to continue to push, I'm staying very open to the possibility that this may turn into a failed bounce. We have the sort of Monday morning weakness that is almost always bought. But if the pattern of weak closes develops again, it will be a matter of concern.
The market is doing a pretty good job of shrugging off Greece this morning, but the lack of good technical setups and the potential that the V bounce may not work as it has so often are reasons for some caution.
