The indices didn't do much today, but the market did manage a positive response to the Fed minutes once again. The minutes made it clear that a majority of members were in no rush to raise rates, but keep in mind that this was before the very impressive January jobs news that created the recent top in bonds.
There was plenty of mixed action under the surface, but what was most interesting was the very aggressive speculation in "junk" biotechnology. We had some names like Eagle Pharmaceuticals (EGRX) and Juno Therapeutics (JUNO) that did well, but it was small-cap names like Sangamo BioSciences (SGMO), Anika Therapeutics (ANIK), Genetic Technologies (GENE) and Anthera Pharmaceuticals (ANTH) that kept traders active.
The bearish spin is that we are very late in the game when we have traders chasing this sort of garbage, but if you're trying to time the market based on that behavior, you haven't been paying attention the last few years. The issue here is that market players are still desperate to be in this market and they are going to throw money at whatever they can.
While the market is still in an uptrend and holding key support levels, the lack of volume and sustained momentum is making trading very challenging. Volatility is declining, but there is still no indication the bears can gain an edge.
Given the news flow today, the market didn't do much, but it did have a generally positive reaction. Good news is still good news, and that is the key right now.
Have a good evening. I'll see you tomorrow.
Feb. 18, 2015 | 2:17 PM EST
Market Loves to Love the Fed
- ·Release of minutes starts to spice things up.
It is a very dull and boring day, but so far the old saying "Don't short a dull market" may kick in now. We have some Greece headlines hitting and the minutes of the last Fed meeting were just released and the major headline is that many members are inclined to keep rates extremely low due to weak inflation.
We have traded higher on the release of the Fed minutes the last seven times, which goes to show the market loves to love the Fed. There is always a dovish spin to be found, and we are finding it once again.
This market is extended on low volume and doesn't have much of a foundation for more upside, but the fear of being left out continues to be the driving force. The funny thing about this reaction is the Fed minutes aren't at all surprising. It has been known for quite some time that there is no rush to raise rates, but the market likes to hear it any way.
We'll see how well we hold on to this positive reaction, but this market is so extended on such light volume that you have to wonder when we will have a good shakeout. Just keep in mind that trying to anticipate a top has been the reason so many funds have done so poorly for several years now.
I'm still hunting for some new buys, but action like we have right now is only making it harder.
Feb. 18, 2015 | 11:09 AM EST
Tired and Bored Action
- ·Traders are itching to be more active.
The indices are seeing a little bounce action after a lackluster start, but there isn't much energy. Breadth is running 2,300 gainers to 3,000 decliners and the momentum scans are not showing much life. CyberArk Software (CYBR), Tableau Software (DATA) and, my stock of the week, First Solar (FSLR) are showing life, but pockets of momentum are, again, very narrow.
The market has had this slow upward drift for a while, which suggests that it needs rest, and there has been enough underlying support to prevent a correction. Underlying support kicked in again today, but I suspect energy is being used up and making things hard to hold. It isn't bad action, but it is tired and rather boring.
Many traders are itching to be more active and are taking on some "boredom" trades. I've been dinking around with small trades in Novogen (NVGN) and Neuralstem (CUR), but you really have to be satisfied with flipping for pennies if you want to be active now. It would be refreshing to get a good flush, but this market seldom makes it easy to have a move that shakes things up.
We'll see how it goes as the day progresses and deal with the Fed minutes later. It is just a rest, and we shouldn't read much into it.
Feb. 18, 2015 | 7:12 AM EST
Chasing Momentum Is the Safest Option
- Plenty of market players want to put some cash to work.
"Stupid people just do. We tend to overthink. If we could eliminate the 'over' and just think, then we could do, too. Only we'd be smarter doers, because we'd be thinkers."
After a low volume, narrow-range, positive day it is very easy to overthink this market. Nothing really notable happened yesterday, but market players are always inclined to start predicting something dramatic. While the recent move higher has been rather lackadaisical, there is absolutely no reason to believe the market is going to suddenly make a big move in either direction.
This market action is really rather boring right now, and that invites us to start speculating about what is going to happen next. Many traders start hoping for pullbacks as they feel that will provide them better trading opportunities, but other market players are worried about this market running away from them and they continue to provide support as they look for entries.
The market has a fair amount of news flow on the agenda today, with some economic news, Fed minutes and the possibility of some sort of agreement between Greece and the EU. Any of these events could serve as a catalyst, but the mindset of market players is to use any weakness as a buying opportunity. The market is showing too much strength to believe that we are going to suddenly fall into a downtrend.
The folks in the business media tend to think that their audience likes celebration over the fact that the indices are hitting new highs. There are many casual market observers and passive investors who do like to hear that things are chugging along in a straight line, but for more active market players this sort of market behavior does present a number of challenges.
While riding an uptrend is easy, very easy in theory especially if you are holding indices or long-term stocks, it is much more challenging when you are trying to put money to work. Nothing has been harder since the Great Recession to chase a market that is moving straight up on low volume. It just isn't the sort of entry point that helps to reduce risk.
Over the last few years a number of things have changed about the market. Computerized trading, the great liquidity created by central bankers and the tendency toward V-shaped moves are a few of the most obvious. All of those things have contributed to a greater inclination toward chasing momentum. There are more market players than ever who are willing to buy stocks that are quite technically extended. Valuation is also irrelevant, as long as there is evidence that the stock is "in play" and hot money is willing to chase it.
Momentum chasing is now the safe thing to do, and that is exactly what we have going on in this market right now. There is actually quite a bit of complacency, as market players continue to pay up and trust that the market isn't going to reverse on them.
The only rational way to deal with this market in the short term is to respect the fact that it is trending, and continue to put money to work. That is a great challenge and requires constant effort to find new additions. Also it doesn't relieve us of our job of managing existing positions. There are still potholes and obstacles in individual stocks within an uptrend.
We have flat action in the early going as we look ahead to news flow. The Fed minutes this afternoon will stir up some talk once again about interest rate hikes and we'll probably dance around to some news about Greece once again, but the main dynamic to focus on is the fact that there are still plenty of market players who would like to put some cash to work.