It may sound trite and simplistic, but "Don't short a dull market" can be extremely effective. The market action has been extremely slow recently and has had a slight negative bias, but the bears were unable to do anything with the advantage they had, so the bulls went to work and pushed us higher on light volume.
Many of the bulls are optimistic we will have another "Greece is saved!" rally after the meeting tomorrow. That is part of the reason the shorts covered and we ramped this afternoon. One way or another, we are going to dance around to Greece once again, and given the history it is hard to believe it won't be saved yet again.
While the action today was pretty upbeat, I have to admit I can't shake the feeling that this may be the suck-in that sets us up for something ugly in the next week or so. The news flow continues to be problematic and we can't run up on Greece forever.
It's the price action that should be our guide, and it was good today. You can always question the rationale of the buyers, but they are showing some resolve after some very lethargic action. My trust level is low but I'm not going to fight strength.
Have a good evening. I'll see you tomorrow.
Feb. 10, 2015 | 1:24 PM EST
Momentum Is Limited
- · But is a dull market what we need to produce positive action?
Market activity is still extremely slow, but breadth is slightly positive and the indices are holding up. It brings to mind the old aphorism "don't short a dull market." It is especially appropriate when the bears have good conditions to pressure the market but are unable to do much with it. If they can't take it down, plenty of potential buyers are willing to take it up.
I continue to work through charts looking for new buys but the biggest obstacle tends to be lack of volume. I have scans that look for stocks that are up on increased volume and there isn't much showing up.
One of the biggest issues is the lack of stocks making new highs, which means very limited momentum. I show a total of 101 new highs on the NYSE and Nasdaq combined, while there are 54 new lows. There's nothing exciting about that -- which is the problem the overall market is suffering.
We'll see how things develop this afternoon. My feeling is that the bears aren't doing much and plenty of bored traders would like to push for buys. While the news flow isn't producing much action, it is a very dull market and that may be all we need to produce positive action.
Feb. 10, 2015 | 10:38 AM EST
A Slow and Dreary Market
We are stuck in a zone lacking in energy.
Talk about a possible delay in the Greek crisis had the market in positive territory to start the day but once again the action is very lackluster. There is slightly positive breadth, with about 2,700 gainers to 2,550 decliners, and some strength in biotechnology and semiconductors. However, the recent oil bounce is fading and pockets of momentum are very sparse. Only about 70 stocks are hitting new highs but other than Starbucks (SBUX) and a couple of others there isn't any notable leadership.
While I'd really prefer to write a more upbeat report of market conditions, there just isn't any energy out there. We are caught in this middle zone with some minor support that prevents a real washout but no real buying interest to take us out of the trading range.
It is very easy to force trades in this environment and then find yourself selling flat when there is no further movement. It isn't just longs that are difficult. The shorts are equally difficult, with Yelp (YELP) being a good example when you chase downside momentum.
Once again I'm doing very little trading. I sold a couple things into early strength and added some Infinera (INFN), which is hitting a new closing high, but there simply aren't any good opportunities to put money to work right now. It is slow and dreary and buyers are uninterested.
Feb. 10, 2015 | 7:44 AM EST
It's the Toughest Environment in a While
- It will be easier to deal with the market if you acknowledge that.
If there is no struggle, there is no progress.
The most important thing to know about the stock market right now is that it isn't offering many good opportunities. Market players like to think that all markets are essentially equal and we can produce good results by working hard. Unfortunately, it doesn't work that way. There are times when there simply isn't a good edge, and all we can do is be patient and wait for conditions to change. We are at that point right now.
The biggest challenge right now is that the market is essentially trendless. We have been swinging around in a range since the start of the year and have tested both the upside resistance and the downside support three times. We had a good try at an upside break on Friday following better-than-expected jobs news, but worries about a hawkish Fed kicked in and we started rolling over again.
There are two other major negatives right now. The first comes from the continued problems between the European Union and Greece. Greek officials are expected to offer a debt deal to creditors in Brussels on Wednesday, but they continue to reject the toughest austerity terms.
The second issue is continued economic slowing in China. After weak import news yesterday there is a report today that inflation is at a five-year low due to very weak consumer demand. China is not alone and, although oil has bounced a bit, the weakness there is further evidence of a slowing global economy.
The fundamental negatives aren't any big mystery. We no longer have the central bankers providing the same level of support they once did, Greece is a mess and the best economy in the world right now is the U.S., which is still so slow that there are questions about whether the Fed will even raise rates this year.
Technically, the indices are muddled and unclear. There are always a few bright spots, but the V-shaped bounces aren't developing like they once did and the dip-buying interest is quite limited. On the other hand, there is sufficient support to prevent a major technical breakdown, but there isn't any strong momentum or leadership. It is trendless and lifeless.
So how should you deal with this sort of market? We simply wait for conditions to change. The one great thing about the market is that things will always change. When we have a difficult market, we simply play strong defense and take comfort in the fact that change is inevitable. It may ultimately be a breakdown to the downside, but eventually that will give us better conditions in which to make money.
At the moment this is one of the toughest trading environments we've had in a while. Embrace that fact and it will make it much easier to deal with this market.
News is hitting that the EU is going to propose a compromise plan that will allow Greece a six-month bailout extension. That is giving us a slight boast in the early going.