There were no news events today to surprise market players, but they have grown so used to volatility that many were unable to embrace the market. It was just straight up all day long with a surprising lack of emotion. The point gain was big and breadth solid. We even had small-caps leading, which is surprising in an environment where you might think there is a preference for safety.
The steady ramp-up produced the feeling that all the recent anxiety over earnings, the economy, deflation, Greece and central bankers has been forgotten. The bulls are ready for V-shaped action, and they may be assisted by the large number of folks who are struggling to feel the love. It is definitely good action, but trust has been impaired in 2015 and it isn't being regained with just one solid day.
One dynamic that has helped this market tremendously over recent years is that it tends to create a big supply of underinvested bulls. Today's action is doing that one again. There is a big crowd of folks who are standing on the sidelines scratching their heads. They aren't bears, but they do harbor some doubts and they are keeping cash in reserve. That cash slowly is put to work as the market holds up.
While it does look a bit V-ish out there, the market just doesn't feel the same way it did last year. There is an emotional shift that is hard to quantify, but when you have a day like this with a strong finish, there is no choice but to respect the price action.
Have a good evening. I'll see you tomorrow.
Feb. 05, 2015 | 1:02 PM EST
For All the Action, It Sure Is Quiet
- · Many aren't chasing this joyless rally.
Although the upside momentum has slowed to a crawl since the first hour of trading, the indices are still holding on to solid gains and breadth remains very strong. What is most notable about the action is how quiet it is. It is likely that the recent swings have pushed many market players to the sidelines, and now they are underinvested and hesitant to chase this strength. This sort of joyless rally isn't anything new, but it is interesting that there seems to be less of an inclination to chase.
If we continue to hold steady, I'll be looking for buyers to get busy into the close. They are still maintaining doubts about the ability of this market to hold, but the longer we stay green the greater the anxiety over being left behind.
Like many other market players, I'm struggling with trust. We are in our third big swing since the start of the year and each time we have been at this point previously it turned out to be short-term top. Normally, when you test a resistance level several times it is less likely to hold, but we had the mirror image of this to the downside and the bears were caught in an ugly trap last Monday when we broke support.
I'll be looking for some new inventory into the close, but I'm not feeling the level of confidence that I'd like. Perhaps that is a contrary indicator, but if you are feeling highly positive about this action then you haven't been paying much attention for the last month.
Feb. 05, 2015 | 10:30 AM EST
Greece Goes on the Backburner
- ·Market picks up where it left off before Wednesday's late slide.
Greece is on the backburner and the market is picking up where it was late Wednesday afternoon -- on the verge of a strong close before the Greek bond news hit. Now the market has shrugged it off completely.
The underlying action looks healthy with breadth around 3-to-1 positive and key groups of biotechnology, oil and semiconductors acting better. The momentum screens look good, too, with continued interest in some high-beta, big-cap names like Amazon (AMZN) and Twitter (TWTR).
While this looks solid, the challenge this year is that the market has tended to reverse from action of this sort. In 2014, market players counted on the V-shaped move, but this year it has been extremely dangerous to anticipate sustained upside momentum.
I'm happy to see bounces in some of my core names -- Zeltiq Aesthetics (ZLTQ), Tower Semiconductor (TSEM) and Super Micro Computer (SMCI) -- but I am not doing much new. I've started a position in Tableau Software (DATA) and will be looking to average in further as it develops. I also like the way precious metals are developing and have my eye on that sector. The Direxion Daily Gold Miners Bull 3X ETF (NUGT), for example, is forming a good base.
I'd like to put more money to work but I'm waiting for this market to prove itself further. There have been quite a few bull and bear traps recently, so I want to see how it holds as the day progresses.
Feb. 05, 2015 | 7:40 AM EST
The Danger Level Is High
- Could this be one of the toughest markets ever traded?
Greece is not going gently into the night.
-- Yanis Varoufakis, Greek Finance Minister.
The total gross domestic product of Greece is about equivalent to the market cap of Procter & Gamble (PG), yet it has been having an outsized impact on the market for more than five years now. I don't know how many times we have gapped up or down due to some news headlines about Greece.
The latest news is that Greek bonds can no longer be used as collateral for loans, which is a bit of problem since they are incapable of paying their bills. The reason Greece is so important is that it goes to the heart of the entire European Union and the degree that strong countries like Germany will have to support those who refuse to exercise austerity.
The drama isn't likely to come to an end soon, but you can bet we are going to see some "Greece is Saved" headlines again. At some point a deal will be done, but we are going to dance around to the news.
Before the Greek news hit late in the session yesterday the bulls were starting to feel more optimistic. The market was moving up despite a sharp decline in oil and we had some big-cap names like Disney (DIS) and Manhattan Associates (MANH) doing well. On the other hand, we also had some issues in a variety of biotechnology and oil names and a few key stocks like Chipotle (CMG).
While there are positives, the biggest change in the market lately is the very high level of volatility. It has been extremely difficult to have trust and confidence, as there are such fast and random swings. The Dow has swung almost 200 points on nearly every day so far this year. While volatility can provide good trading, it creates too much instability when it is too random. That is the problem we have now. There simply is no way to anticipate the next swing.
The bullish view of this market is that we are just working through a few problems and washing out some of the excess bullishness. Ultimately, this will produce support and we'll be back on track for new highs.
The bears view is that this jump in volatility is an indication that the market is going through a major shift in character. We've had a generally poor earnings season and central bankers are losing power. The economic recovery is still poor and deflation is becoming a bigger concern. The way the market is acting now is a product of a major shift in sentiment that will eventually produce a market breakdown.
While it is always best to let the price action be your guide, it is difficult to not be concerned when we have action like we did in the last hour yesterday. If we can fall apart so easily on Greece headlines, then there isn't much confidence supporting this market.
As I discussed yesterday, it has been very hard to trade this market recently. There simply isn't good leadership or momentum and chasing things like the oil bounce can be very painful. I've heard a number of traders comment that this is one of the toughest markets they have ever traded right now
We are seeing some bounce in the early going, but premarket has been a very poor indicator lately. Be careful. The level of danger is very high right now.