Many market players have been wishing for a while that we'd see the end of the one-way V-shaped action and a return to some more normal trading. Well, they may have finally been granted part of their wish. But they may regret it.
We had extreme choppiness today, which greatly frustrated many traders trying to navigate the ups and downs. The intraday rally in the mid-afternoon on a bounce in oil was a particularly nasty trap for the bulls as the market then plunged straight down and lost 30 points in the S&P 500 to close at the lows.
It is often said the high levels of volatility are an indication of a change in market character and it is hard to argue with that. We have not had action like this in a very long time and the news flow is giving the bears plenty of ammunition.
The good news is that we still are above key resistance levels. We have not yet taken out the January or December lows and are above the 200-day simple moving average. There are a few bright spots, such as Amazon (AMZN), and oil did finally manage a pretty good bounce, but for once the dip buyers are losing confidence and the potential for a more severe downtrend is building.
There were plenty of jokes today about how this very poor action probably means a huge day on Monday, but there is still a lot truth to that given how this market has acted of late. The computers are receiving much of the blame for the volatility, but human traders are acting erratically as well. Make sure you are playing some defense and are protecting capital.
Have a great weekend and enjoy the Super Bowl. I'll see you on Monday.
Jan. 30, 2015 | 10:34 AM EST
It's a Highly Emotional Market
- And many complain about the randomness of swings.
Market volatility continues at extremely high levels, with dip buyers jumping on the gap down open but failing to sustain the bounce. The iShares Russell 2000 (IWM) is already back to the day's lows and the senior indices are off their early highs as well. Breadth is solidly negative, at more than two to one negative. We have some slight strength in biotechnology, oil and gold while chips, banks and drugs are lagging. Amazon (AMZN) and Google (GOOGL) are up following earnings, but it doesn't have much sympathy impact.
Many traders are complaining about the randomness of the swings. Fast moves are one thing, but this market feels highly emotional right now and there isn't any edge using fundamentals or technicals. This action does create opportunity, but you need to be patient and build positions slowly.
There is lots of focus on the Shake Shack (SHAK) IPO, but what you don't hear is that unless you had $20 million or so in a brokerage account, you did not receive an allocation. This is just a gift to big customers and the media does a great disservice to individual investors by stirring up so much excitement and enticing people to chase.
The indices are breaking down again as I write, and it is becoming extremely dangerous. I see some names I like such as Super Micro Computer (SMCI) and Himax Technologies (HIMX), but it is just too volatile to do anything other than incremental buys.
Jan. 30, 2014 | 7:20 AM EDT
The Market Is Fundamentally Changing
- And maybe not for the better.
If you don't read the newspaper, you're uninformed. If you read the newspaper, you're misinformed. -- Mark Twain
People who write about the stock market are always looking for an easy explanation of why things are moving in one direction or the other. There is almost always some piece of news that helps to explain what is happening. It may be a piece of economic news, central bankers or earnings reports.
After the strong move yesterday, the market is trading down this morning and there isn't any obvious news headline to serve as an explanation. Yesterday there wasn't any particularly strong explanation for the strength, either. There were some mentions of a proposed tax repatriation bill by Senators Boxer and Paul and there were apparently some comments by Janet Yellen about not being in a rush to raise interest rates.
We also had plenty of earnings reports, but it wasn't the news headlines that were driving things. It was simply the emotions of traders and investors fluctuating as they tried to come to terms with a market that has been increasingly volatile.
Since the last couple days, of December the market has been undergoing a gradual change of character. The DJIA has had swings of more than 100 points nearly every trading day so far this year and the much-loved and respected V-shaped bounce hasn't worked like it did for all of 2014. The major indices keep testing support levels and are holding so far, but the risk of a breakdown is growing each time we retest the lows.
While there are plenty of negatives, such as the never-ending freefall of oil, the really big change that the market is dealing with is that central bankers are running out of ammunition. The ECB finally made its big QE move and China is still running its printing presses, but in the U.S., the issue with the Fed isn't that they will raise rates, but when.
Against that backdrop, we have a very volatile season as well, with some big winners like Apple (AAPL) and Amazon (AMZN) and then some disasters like Caterpillar (CAT) and Microsoft (MSFT). The main theme this earnings season has been currency issues and slowing growth, which doesn't give buyers much comfort.
The bulls are still very hopeful that the market is going to find its footing and recover like it has so often in the last few years. Days like yesterday help to create some hope that is the situation, but the quick reversals we are seeing and the increased choppiness is an indication that this market is undergoing a very fundamental change and it may not be for the better.
We have very weak early indications, despite some decent earnings news. GDP and Chicago PMI numbers will be out later and will likely move the market for a few minutes.
This is a dangerous market and caution and vigilance are required.
