For the third time this year, a V-shaped bounce attempt was turned back just as the market approached new highs for 2015. The catalyst was "good" jobs news. We started off celebrating better-than-expected jobs growth and some big revisions in prior months, but the worry that the Fed will start raising rates as early as June slowed down the buyers and we ended up cracking intraday support. There was a slight bounce to conclude the day but, overall, it was a small victory for the bears.
The bulls will shrug off this action as just some consolidation after a big week. However, the last two times we stalled at these levels the sellers gained traction. We are still over the 50 day simple moving average, but given the volatility over the past month you have to wonder if the bears are going to make another push.
What was most notable this week was that despite the big moves in the indices there were very loud complaints from traders about how difficult it is to navigate the market. We had a technical breakdown on Monday that trapped the bears, some major rotation out of biotechnology and chips and into oil, and some surprises from Greece that jerked us around. It was a difficult environment for stock picking even though we did have a big upside move.
Next week will be a very interesting battle between the bulls who love the improvement in employment and aren't giving up on V-shaped moves and the bears who think a less dovish Fed is going to be a major headwind. Given the action I see in individual stocks, I'm leaning more toward the bear side, although that can change fast. There just isn't enough action on my screens to make me excited about new buys.
Have a great weekend. I'll see you on Monday.
Feb. 06, 2015 | 10:28 AM EST
Underinvested Bulls Seek Entry Points
- It's a struggle putting new cash to work.
Twitter (TWTR), LinkedIn (LNKD) and Buffalo Wild Wings (BWLD) gave the market some good earnings news to work with but talk that a June rate hike is back on the table following the strong jobs news is keeping a lid on things. Good employment numbers may not be good news for the market despite all the excited folks on TV.
Oil is bouncing a little and that's helping, but it is strength in financials helping to hold the market up. Precious metals were clocked and there is pressure on biotechnology and chip stocks again. A handful of stocks with good earnings are seeing some chasing but there is very little follow-through from earlier in the week. Chasers just aren't seeing more than a one-day pop in many names.
The best thing the market has going for it right now is how the recent action has created another big group of underinvested bulls. The folks who thought we'd have a technical breakdown on Monday morning never were able to reload as we had to deal with the Greece mess and now they are provided support as they look for entry points.
I'm one of those underinvested traders myself and it is quite a struggle putting new cash to work. I like Tableau Software (DATA) for some sustained momentum and I'm making some small trades in a few other things such as Novatel Wireless (MIFI), but there just isn't much that allows for sizable buys right now.
Feb. 06, 2015 | 7:29 AM EST
Still Waiting for Solid Leadership
- The Fed vs. the economy is causing continued volatility.
A man willing to work, and unable to find work, is perhaps the saddest sight that fortune's inequality exhibits under this sun. -- Thomas Carlyle
Solid action on Thursday has many folks feeling like the market is back on track and heading for the December highs. While it was a clear trend day with big point gains and a positive breadth, volume was a bit light and there still is not good solid leadership. Another bounce in oil helped matters and we did have better earnings than we've seen previously this quarter, but there is skepticism about the V-shaped move this time.
With the kerfuffle over Greece having subsided and the focus turning back to ECB quantitative easing, the bulls are hopeful that Europe will no longer be the distraction that keeps producing volatility. But the focus turns back to the Fed and potential interest rate hikes in the U.S. this morning as we await the January jobs news.
One of the main causes of volatility in January was the market trying to reconcile a hawkish-sounding Fed that intended to raise interest rates before the end of the year with a weak economy and even some deflationary fears. The action in bonds had been at complete odds with the notion that rates are going up soon, yet the market has been concerned that the Fed is in a box and will be forced to tighten sooner rather than later.
The issue this morning is how the jobs news will impact expectations about Fed action. The Fed has focused on the unemployment rate, which seems to be looking better. But the general consensus is that the numbers are misleading, at best. This recent article by the CEO of Gallup explains the skepticism over the idea that employment really is improving and makes many wonder why the Fed fails to admit how weak things still really are.
For a long time, we have had the dynamic where bad economic news was a positive, as it kept the Fed from tightening. That tendency no longer is as strong as the Fed has pretty much run out of ammunition now. There isn't going to be any more QE, but the market is still hopeful that plans for higher rates will continue to be pushed back.
A strong jobs report is going to cause concern about interest rate hikes sooner rather than later, but there is also going to be some relief that there is some improvement. The business cycle does still work, but this recovery has been one of the worst in history and the Fed has taken on almost a cheerleading role with the talk about how they will have to raise rates very quickly. Not many economists believe it and the bond market sure doesn't reflect it, but it can impact equities this morning.
Overall. after the near breakdown on Monday morning the market is in better shape now. It has been very tricky action to trade, but the S&P 500 is back over the 50-day simple moving average and is testing the highs of the last three weeks. There are plenty of traders grumbling about the tricky action, but the price action is forcing them into the market and that is what V-shaped moves are made of.
Like many others, I'm underinvested and would like to put some cash to work, but I'm staying selective and trying not to force things.
We have some good earnings from the likes of LinkedIn (LNKD) and Twitter (TWTR) helping out this morning. The jobs news is out at 8.30 a.m. ET and we'll see where things go from there.