Volume was light, the trading range was very narrow and the indices barely budged. Given that the market is a bit technically extended, that is a positive -- it needs to consolidate to give us a better foundation for more upside.
The media continues its annoying celebration of the indices hitting new highs, but it is understandable since there really isn't much else to talk about. The market is ignoring any possible negative spin of Greece or Ukraine, and there isn't much focus on the Fed, although minutes of the last meeting are due tomorrow afternoon.
The easy thing to do is look for reasons why this somewhat extended market has to roll over. The bears have been making predictions like that for years -- but that isn't how this market functions. Markets that are extended on light volume can easily keep going, even when we have sell-the-news potential like Greece or Fed minutes.
The trend is up. It would be more convincing if we had better volume and stronger leadership, but looking for reasons to fight this market isn't a money maker.
Have a good evening. I'll see you tomorrow.
Feb. 17, 2015 | 1:27 PM EST
A Teflon Market
- Nothing can stop it.
The market has had good reasons for selling today, but the bears are unable to gain traction. The Ukraine cease fire has fallen apart and that was ignored. There was no deal on Greece, but now we have headlines that they are likely to ask for a six-month extension, which, of course, is celebrated as good news. Kicking the problem down the road has worked for years, so why change now?
Breadth is slightly positive but despite the fact that the market is around the highs of the day, the action is lacking a joie de vivre. Fighting the strength isn't working, but it would be nice if the emotions were more in line with the market action.
This market is made of Teflon, and nothing is able to stop it. While the action is mild, it is consistently positive, which tends to feed upon itself. The longer it continues, the more anxious the bears and underinvested bulls grow, and the more likely they are to pay up to join the party.
You have to wonder if we may eventually see a sell-the-news reaction to Greece getting pushed down the road again, but that dynamic doesn't often work in these days of endless liquidity. A bullish bias is the way to go, but finding places to put cash to work is the challenge.
Feb. 17, 2015 | 11:05 AM EST
Trust Levels Are Low
- The market is holding up, but it looks tired.
With the market extended and no resolution to the Greek issue, the indices were in good shape for a bit of weakness, but the dip buyers have us back at the day's highs. The indices have a slightly negative bias and breadth is running around 2,500 gainers to 2,800 decliners. Biotechnology and banks are leading while precious metals and retailers lag.
There are pockets of momentum in CyberArk Software (CYBR), Vasco Data Security International (VDSI), LinkedIn (LNKD) and Apple (AAPL), but trust levels feel low. The momentum is very limited and we need expansion of the strength for this uptrend to really gain strength.
A couple of small stocks I've mentioned recently, Halozyme Therapeutics (HALO), Idera Pharmaceuticals (IDRA), Ziopharm Oncology (ZIOP) and Super Micro Computer (SMCI) are doing well but, again, the big challenge is finding new inventory to add. With the rather low-volume move, the market is extended and needs backing and filling for better setups. Of course, waiting for such setups has doomed many fund managers to chronic underperformance.
The market is holding up well so far, but it looks tired. Keep a close watch on the morning lows. As long as they hold, and hold the lows from Friday, there is a good opportunity for the uptrend to keep going after a very brief rest.
At the time of publication, Rev Shark was long HALO, IDRA, ZIOP and SMCI, although positions may change at any time.
Feb. 17, 2015 | 7:30 AM EST
The Trend Is Upward
- If you worry too much about Greece, you'll miss it.
"The problem is that Greece has lived beyond its means for a long time and that nobody wants to give Greece money any more without guarantees."
--Wolfgang Schaeuble, German Finance Minister
Market players ran the indices up on Friday afternoon as they anticipated a deal between Greece and the European Union. No deal was made but the market remains unconcerned. Greece has been saved so consistently for so long that it is widely anticipated it will happen again, despite the rhetoric and brinkmanship.
The key right now is that market players simply aren't inclined to focus on negatives. They are embracing the positives and ignoring the negatives. There are some excellent reasons to worry if you are so inclined, but they are having little impact right now. The indices are hitting new highs, breadth has been good and the number of stocks that are making new highs is hitting solid levels.
Technically, the recent run has come on mediocre volume, but one thing we have learned many times over the last few years is that we don't need high volume for a breakout to gain momentum. Momentum is usually much more convincing when it has big volume to back it up -- but that is one dynamic that has changed in the last few years. You have to respect the direction of the price action, even if it comes on unconvincing internal action.
The biggest problem with the recent move is that it comes without great leadership. We have a few names that have gapped up on good earnings, but we have had quite a bit of rotational action rather than sustained leadership. The bounce in oil has offset some downside action in biotechnology, and we've had financial and semiconductors taking turns lifting the indices.
One thing that has given bulls more optimism lately is the sharp fall in bonds. The iShares 20+ Year Treasury Bond (TLT) has gone straight down since peaking at the end of January. There is obvious growing confidence that the economy is on the right track and that maybe it isn't totally outrageous for the Fed to be talking about raising interest rates later this year. The disconnect between bonds and the rhetoric from the Fed caused the market much confusion in January, but now we seem to have some consistency of thought, which is helping to drive the market.
The market is back in a very familiar place, with new highs on light volume and a good supply of concerns that help to create a wall of worry. We've seen the market keeping running when it is in a position like this, even though we are extended, don't have great leadership and have things like Greece to worry about.
While it is very easy to make a bearish argument, the key to navigating the market is to simply respect the price action. If you spend too much time worrying about Greece or the lack of volume, you will miss the very simple fact that the trend is upward and that is all that really matters to the vast majority of market players right now.