The most notable characteristic of today's market action was the steadiness and consistency of the buying. There was nary a dip, and breadth stayed around 3-to-1 positive all day. Market players exhibit no worry or concern, and it would be an understatement to say the action was complacent.
The explanation for this strength is a cease-fire in Ukraine and optimism that a deal would be reached between Greece and the European Union. Market players are so confident those things will be resolved that they are buying to make sure they are in front of the news. They have learned that good news is hardly ever fully discounted and that it is foolish to anticipate a "sell the news" reaction.
So here we are, pressing at the highs on light volume and slightly extended. Momentum favors the bulls, but the technical conditions don't make new buys easy. Traders have dealt with this dilemma for years, and they have ultimately resolved themselves to the upside. You may find it hard to embrace this action, but it is downright foolish to fight it.
The easy thing to do is to predict a reversal. The hard thing is to do is stay with the long side and look for reasons to be positive. It may not feel very intuitive to embrace this market, but it works.
Have a good evening. I'll see you tomorrow.
Feb. 12, 2015 | 1:43 PM EST
Can't Get Into the Party?
- Feeling left out of all the action.
It is one of those days with consistently positive action but little excitement. There is plenty of talk about it being a great market, but not much chatter about any compelling buys. If you aren't already in, there aren't many easy opportunities to join the party.
Market action like this produces joyless rallies and chronic underperformance by fund managers. Indexers and the news media love markets like this because when the DJIA is up, that is all that matters. It isn't nearly as easy if you are a stock picker or trying to trade, but these days the focus is mainly on computer-driven spikes and ETF index plays.
In the "old days," market action like this might attract contrarians who believe the lack of worry and concern and the low volume levitation were signs that we were stretched too far. Unfortunately for the bears, that sort of thinking simply doesn't work in a market where the primary emotion is fear of being left behind. We simply don't have situations where market players are all loaded up and running out of buying power. The buying power never seems to come to an end.
I have a few names on my radar like Ziopharm Oncology (ZIOP), First Solar (FSLR), Super Micro Computer (SMCI) and Halozyme Therapeutics (HALO), but it isn't easy to do anything sizable.
Feb. 12, 2015 | 10:42 AM EST
A Familiar Market Lesson
- · Have you learned it yet?
Despite soft economic reports, all that matters now is the news out of Europe. Market players have no worries about Greece or Ukraine, although there is still potential either may fall apart.
We are seeing one-way action this morning as the scramble to add long exposure expands. Breadth is very impressive, with more than 4,000 gainers to less than 1,200 decliners. There's leadership in financials, oil, chips and even precious metals, while biotechnology is the only notable laggard. Momentum stocks are walking higher, and there isn't a worry in the world. It feels much like it did for most of 2014.
So is the market back on track? Are the bulls going to reel off another long string of positive days and ignore all negatives that the bears can throw at them? It is looking that way, and if there is one lesson this market has taught us, it is to respect the price action.
The dilemma of this sort of action is that it is no easy task to add new long exposure. The entry points become increasingly difficult as volume declines and stocks become more extended. Take Apple (AAPL) as an example. By any measure the stock is acting very strong, but it is straight up 6% in three days and extended beyond the recent base just under $120. If you have money to put to work, do you buy it here? I'm sure the fundamental bulls would say yes, but from a technical standpoint that is a challenging entry for most folks -- a challenge that has caused major underperformance for many funds over the last few years, and we are seeing it again.
The big picture has shifted quite a bit but the price action is still the same. The lesson has been, and remains, don't fight it.
Feb. 12, 2015 | 7:44 AM EST
The Bulls Have Some Momentum
- Let's see what they do with it now.
Even if you're on the right track, you'll get run over if you just sit there.
-- Will Rogers
The market is still waiting for news that Greece is saved, but it doesn't matter at the moment because Ukraine is saved. A ceasefire and a bailout deal were worked out, and that is giving us some early strength. There is still some nervousness over a potential deal for Greece, but the market remains optimistic. Buyers are far more worried about missing out on a rally than they are concerned about being caught by bad news.
If this open holds, we are looking at a breakout in the Nasdaq above the December highs. The other indices aren't far behind. As usual, we have a big group of underinvested bulls that have doubted this market and are now trying to find long exposure. It has been extremely hard to trust this market lately, but that seems to be the condition that keeps pushing us higher. It is classic "climb the wall of worry" action, and the longer it continues the more concern there is that there won't be good entries.
One particular bright spot is that the Nasdaq has taken a leadership role recently. It is the sector that typically provides the best leadership. Apple (AAPL) in particular has taken charge, and seems to be creating some sympathy action. The level of new highs is still contained, with less than 200 stocks, but it has been gradually expanding.
So often rallies like this have been called joyless or unloved, because so many market players are untrusting and struggling to put cash to work. Very few traders will tell you that there is a big supply of great long setups. That is particularly so since it has been so choppy and sloppy for most of 2015. The action yesterday was much calmer, and that did help to elevate the mood.
The issue we are going to run into soon is whether a deal with Greece is going to turn into a "sell the news" event. A deal of some sort is definitely being well anticipated, and we have been pricing it in for several days. We are going to continue to dance around to headlines out of Europe, and the potential for some quick swings is quite high.
Over the past five years, the biggest challenge for most market players has simply been embracing this market and staying with it. There always are some good reasons to worry and the change in the market character for most of 2015 has been a good one. The market now is working to shake off some of its jitters and many of the perma-bulls are expecting that the days of V-shaped moves are not over.
At this point, the bulls have the ball once again and we need to respect that fact. The market has trapped the bulls three times since late December, but they have some momentum and we'll have to see what they do with it.