While there is grumbling about poor recent economic news and a weak sentiment survey, the only real fear in this market has is the fear of being left out. Market players often believe that there will be selling in front of a long weekend to avoid risk, but in this market the bigger worry is not being long enough for a gap-up open Tuesday.
The likelihood is that we should have a possible deal on Greece by Tuesday, but many market players think that it will simply be pushed down the road again and we'll have a favorable reaction. We have been pricing it in for four straight days, but in this market there simply isn't any real worry about being caught in a reversal.
One of the most surprising tendencies for a few years has been the straight-up, low-volume moves to new highs. We are seeing it happen again and it really isn't even questioned much anymore. It is taken for granted as the way the market functions now, and it is embraced as standard bullish behavior. Before the Great Recession, such action would entice bears to anticipate a top, but they have been destroyed so often and so consistently for so long that they don't even try to fight weak momentum anymore.
It is going to be interesting to see if the bulls can keep pushing as anticipated news finally hits. You can bet that there are going to be dip buyers lined up just in case we do actually see selling.
Have a great long weekend. I'll see you on Tuesday.
Feb. 13, 2015 | 10:32 AM EST
Driven by Fear
- Optimism isn't driving the action, fear of being left behind is.
Slow but very positive action continues for a fourth straight day. Breadth is solid again with more than 200 new highs already, but there still is little excitement. As I discussed in my opening post, what drives this market isn't optimism about the big picture but fear of being left behind.
One of the more interesting aspects of the underlying action is how much rotation we've had in and out of various groups. We see money come out of biotechnology and into oil and precious metals one day, and financials will take charge on another day, and then sink again. The leadership has been very inconsistent but something keeps stepping up to drive the indices.
The market is ticking downward on a weak consumer sentiment report but none of that seems to matter lately as the focus has been on Greece and Ukraine. Those have been easy excuses to justify buying, but the danger of negative development is high.
New buys continue to be extremely challenging. The rotational nature of the action prevents many individual stocks from trending, although the indices do give that impression.
I'm watching First Solar (FSLR) for an entry on a pullback, but there's potential for intraday reverses today and it is better to move slowly.
Feb. 13, 2015 | 7:42 AM EST
Climbing the Wall of Worry
- The market is back on track toward new highs.
"History says the greatest bull markets climb the wall of worry... When no one has any worries when there's no clouds on the horizon that's when I want to get out of the market."
--Jeremy Siegel, Wharton Professor of Business
Optimism about Ukraine and Greece has put the market back on track to new highs after a very volatile and uncertain January. Market players are feeling better now as a slow, but steady rally has helped to shake off the uncertainty created by some severe swings to start the year.
Many bears believed that the several failed V-shaped bounces in January marked a major turning point in the market and that a deep correction was soon to occur. In view of how the Fed is now taking a more hawkish stance and the fact that central bankers around the world are using up their ammunition, it is understandable that there are some doubts about how much longer cheap money can keep the market trending to the stars.
There is still plenty of cheap money out there, and once a couple of niggling problems like Greece and the ECB quantitative easing announcement were clarified, the buyers were doing what they always do, pushing this market upward.
There are many old-time market players who continue to lament the artificiality of the market, but after five years they should be used to it. The action of the last few days is a prime example of how the market has behaved since the days of the Great Recession. Negatives are ignored and chronically underinvested bulls keep chasing and put a strong bid under the market.
What is always so striking about this sort of market action is the lack of emotion. That is due in part to the high level of computerized trading but it is also due to the focus on indexing. Individual stock picking is what generally causes individuals to be more excited about what is going on in the market. Instead we have a large group of investors who simply expect the indices to keep on driving their 401k and retirement plan allocations upward.
While market volume remains tepid and leadership rather sparse, we did have a big jump in new highs yesterday. That has been one missing component lately and illustrates a broadening market. Stock picking is still a challenge as we have many extended charts and fairly mild momentum. The way to handle this market is with chasing, but for the prudent stock picker that means a lack of discipline if you want to put money to work.
The easiest way to understand the dynamics that create this sort of market action is to consider the old saying "climbing the wall or worry". The buyers out there aren't pushing the market higher because they are convinced that fundamentals are fantastic and everything is going great. They are buying mainly because they are worried about missing out. They are skeptical, which is why there isn't any great celebration, but they also are painfully aware of how the market can keep on running even when they feel it shouldn't. They don't want to underperform as another one-way rally occurs, so they reluctantly put money to work and then inch in even more when the trend continues. The end product is a steady uptrend that only the indexers can really love.
Some good GDP from Germany is helping to hold us up in the early going, but market players are expecting very light volume as another snow storm hits the Northeast and we prepare for a three-day weekend. The bears often think these are good conditions for profit taking, but more often than not they are better for dip buying.