For the third time this month the S&P 500 bounced off support around the 1990 level. It was a good set up for an oversold bounce after the ugliness yesterday. We also had a little help this afternoon from the Fed. As I predicted this morning, a Fed member stepped up, Janet Yellen herself, and made comments about how interest rates would not be going up soon. That provided a late lift and helped take the market out at the highs.
Has the market been saved once again? Will it go straight back up after bouncing off support? Many bulls that are used to the V-shaped bounces would say yes, but this market has a much different feel to than it did six weeks ago. There's much more volatility and quite a few more negatives to deal with. The Fed is still the bulls' best friend, but it is losing some of its luster.
It is nice to see the bounce after the damage yesterday, but the danger that this bounce will fail is extremely high. Even worse is that if it does fail and retests the 1990 level again, the risk that it will crack is much higher. Stay on your toes and be extra vigilant. This market is very risky right now and the action today didn't change much.
Have a good evening. I'll see you tomorrow.
Jan. 29, 2015 | 1:31 PM EST
A Super Bowl Theme Emerges
- Pizza and beer names near new highs ahead of the big game.
I've often written that bad markets don't scare you out, they wear you out. Today is a good example of that. It is slow, dull and many stocks are dripping lower. There isn't any big rush for the exits but there is definite distribution and no real buying interest.
Breadth isn't bad, with about 2,400 gainers to 3,200 decliners, but we are seeing the number of stocks making new lows exceed the number of new highs by a fair amount. Many of the new lows are oil-related while the new highs are a random bunch with things like Anheuser-Busch InBev (BUD) and Papa John's (PZZA) -- maybe it's a Super Bowl theme.
There's probably enough downward pressure to produce a little bounce attempt, but what we really need is a strong finish. A rebound in oil, a dovish statement from a Fed member and some strong finishes would help to turn this market back up.
Right now the bears have momentum. Bounce attempts are fading fast and the danger of taking out support levels continues to build. There is no reason to be rushing into new buys.
Jan. 29, 2015 | 10:58 AM EST
Buyers Lacking Confidence
- Good markets need leadership and we don't have it.
Market players made a brief attempt at a bounce try at the open but more poor earnings reports and downside momentum from yesterday has the market back in negative territory. Without the Fed talking about lower rates buyers just have no confidence. I expect to see some Fed members pop up soon and give some hints about how interest rate hikes will be pushed back into 2016. They seem to always show up when the market is in danger of a real downtrend.
Right now there just isn't anything that is leading this market to the upside. We have Apple (AAPL) up a bit, but also earnings from Qualcomm (QCOM), Alibaba (BABA), Royal Caribbean (RCL), Yahoo! (YHOO) and Cirrus Logic (CRUS). In addition, we have pressure on oil stocks again with names such as Nabors Industries (NBR), Transocean (RIG) and Patterson-UTI (PTEN) struggling.
The market seems very highly correlated with each little move in oil, but the biggest problem is that we really have no decent pockets of upside momentum. The leaders list is a mish mash without any clear themes. Good markets need leadership and we don't have it.
The key in a market like this is to play strong defense and to work hard at keeping accounts close to high. Long trades don't work as easily, so you need to be highly selective with any new buys. I'm doing very little but I did nibble at a little speculative biotech play, MEI Pharma (MEIP), which is turning up a bit.
If this market starts testing day lows again we have some good reasons to worry.
Jan. 29, 2015 | 7:51 AM EST
Time for Some Tenacious D
- Keep your accounts as close to highs as possible.
Often it isn't the mountains ahead that wear you out, it's the little pebble in your shoe. -- Muhammad Ali
Over the last five years, whenever the market was faced was various negatives, market players could always look to the Fed to bail them out. Poor economic news, mediocre earnings and international issues were all irrelevant as long as the Fed kept interest rates low and continued to print money.
That reliance on the Fed explains why yesterday's innocuous policy statement caused a negative reaction. Market players wanted reassurance that the Fed would push back potential interest-rate hikes. While the statement made it clear that it depended on future economic data, that made many folks nervous as it raised the potential that maybe the Fed is already committed to a certain course of action.
Unfortunately, this increased hawkishness occurs against a backdrop of poor earnings, falling oil and economic struggles from Asia to Europe. The bears have a whole host of arguments once again, but this time they aren't fighting the Fed like they have done for so long.
Apple (AAPL) was a definite bright spot yesterday and there were some better reports last night, so the bulls do have some good news to work with. Facebook (FB) is slightly better after some initial pressure on its report.
The big question now is whether the bulls can regroup and hold this market above key resistance levels. The key level for the S&P 500 is around 1988, which is the January low. The DJIA has already breached its January low and is the worst of the major indices due to pressure on multinationals caused by currency concerns. All other indices are above those levels, but if they are tested, the risk is extremely high that we are going to see a rush for the exits.
For a while now I've been complaining about the lack of quality leadership. That has manifested itself in a very choppy and inconsistent market. There simply has not been a core of good stocks to lead the market in an uptrend. We've had good speculative action in biotechnology for a while and recently we've seen the semiconductors step up as they benefited from AAPL's giant quarter. But big-cap leadership has been extremely sparse. That is one of the key things that needs to change for better market health.
At this point, the market is under pressure and that means we need to make sure we keep stops tight and play strong defense. The most important thing you can do is keep your accounts as close to highs as possible. If you are going to make new buys, you must be extremely selective as potential follow-through is much more problematic. There are some safe havens like some chip names, but it is very narrow.
We have a little bounce action in the early going and we'll see if the bulls can regroup. But if we fall back into negative territory, extreme caution is warranted as the potential for a downtrend builds. The latest V-shaped bounce attempt is dead and now we have to focus on how fear and greed drive the market.