The big event today was the congressional testimony by Fed Chair Janet Yellen. She did a nice job of not rocking the boat, which helped put the Nasdaq in the green for the 10th straight day. Volume was lackluster but the machines are set in buy mode and they did their usual last-hour run to keep things popping.
What is most interesting about this action is the consistent bullish sentiment. It isn't very hard to paint a picture where the market would have a negative reaction to what Yellen had to say, but the bears just can't shake the consistent optimism that this market is riding.
Yellen didn't say anything new and you could argue that she actually had a bit of a hawkish tone, but it really didn't matter. What mattered was that interest rate hikes are still data-dependent and won't occur until some unknown date. Unless something very unusual occurs, they are coming, but the market just isn't in the mood to worry about it at this point.
After a 10-day, low-volume advance to new highs, this market doesn't provide many great new setups, but market players are used to chasing this sort of action and that is what they are doing. If you have been waiting for some dips or even some ebb and flow driven by human emotion, you are on the sidelines and probably feeling frustrated. This is perma-bull action and any other attitude is unrewarded.
Sticking with the trend continues to be the way to deal with the market. It may not feel logical since it is so lopsided for so long, but it is what keeps on working.
Have a good evening. I'll see you tomorrow.
Feb. 24, 2015 | 1:28 PM EST
Fed's Tailwind Has Waned
- ·Yellen keeps market steady, but it's up to the bulls.
Fed Chair Janet Yellen was just dovish enough to hold the market steady, but we all know rates are going up sooner or later. Of course, people have been thinking that for six years, but it is clear the Fed is no longer providing the same tailwind it once did.
So the issue now is whether the bulls can keep on pushing this market slowly but steadily higher. There are plenty of traders who are rooting for some sizable swings to shake things up and give us better trading action, but the perma-bulls and indexers are very happy to see this one-way action that causes no real worries or concerns.
The bears keep thinking there aren't any positive catalysts to keep this market running, but what they are missing is that there aren't any negative catalysts to cause a shift in direction. Instead of focusing on what can go wrong, the right trading posture has been to focus on what can go right.
I don't see much new to do right now, but we'll take a harder look in the final hours. Biotechnology stocks have been the main leader lately and they are being hit pretty hard today, while solar energy is holding steady but not gaining much additional traction. Semiconductors are showing some life and there may be some things of interest in the group, such as Super Micro Computer (SMCI).
Feb. 24, 2015 | 10:31 AM EST
Markets React to Yellen
- · Bulls are feelling a little better now.
The initial reaction to Fed Chair Janet Yellen's prepared comments is slightly negative as she doesn't push back potential rate hikes far enough. She does indicate that there probably isn't going to be a rate hike in the next couple of meetings but what market players really want to hear is that the hikes won't come until 2016. She may hint at that in her testimony but so far there is some disappointment that the tone isn't more dovish.
Consumer confidence numbers also hit and came in below expectations. It shouldn't be too surprising that the mood of consumers is still quite dour. Lower fuel prices have helped, but that money is being saved rather than spent due to continued worries about the slow economic recovery.
The indices are holding steady with a slight positive bias. Breadth is running about 2,750 gainers to 2,400 declines. Solar energy, home builders and banks are leading, while biotechnology cools off and is the laggard today along with precious metals.
The solar energy plays I mentioned yesterday have worked well. First Solar (FSLR), which was my stock of the week last week, popped on news of a spinoff called a Yieldco, which is similar to a REIT. SunEdison (SUNE), which is this week's stock of the week, is acting well in front of a meeting with analysts.
We are going to dance around to comments by Janet Yellen now. We'll see how things look later in the day, but the bulls are feeling a little better now that it is clear that higher interest rates are still a ways down the road.
Feb. 24, 2015 | 7:50 AM EST
Keep an Eye on the Solar Sector
- And prep for Yellen's remarks this morning.
It slightly worries me that when people find a problem, they rush to judgment of what to do. -- Janet Yellen
While the major indices did little on Monday, a late spike carried the Nasdaq to its ninth-straight day of gains. The indices are technically extended on light volume, but they have been for a while and trying to anticipate a top has been futile.
The big question today is whether Janet Yellen's testimony before the House Finance Committee will be a catalyst for some consolidation, or even a reversal. The bears are always hopeful that there will be some hawkish talk or a sell-the-news reaction to the Fed, but that simply has not occurred very often. The market has almost always found a reason to celebrate the Fed and it doesn't hurt that Janet Yellen has always been very careful about saying anything to spook the market.
It is highly likely that Yellen will continue to tell us that while there is some economic improvement, it is slow and the danger of inflation is very low, so there is no rush to raise interest rates soon. She will tell us the Fed remains data dependent and will determine the proper course of action as more information is received.
What the market is going to focus on is a specific date for the first interest-rate hike. The minutes of the last Fed meeting sounded quite dovish and that has helped to produce the recent rally, but the last jobs report, for January, was quite upbeat and that is what helped to put a top in the bond market at the beginning of February.
The bears have been anticipating for years that a more hawkish Fed would be the catalyst for a major market top and they haven't even been close to being correct. We have had a few minor bouts of worry now and then, but fear of higher interest rates has simply not taken hold since the Great Recession more than five years ago.
Logically, it makes sense to think that Janet Yellen may be a catalyst today for a bit more profit-taking. We are extended and the market really could use some rest and consolidation. But that simply hasn't been a good trading strategy. What has worked much better is to be ready to buy dips that may be created if Fed worries do start to materialize. You are better off buying weakness on the Fed rather than trying to guess when it might occur.
We also have consumer confidence and home sales numbers coming up this morning and there are still quite a few earnings reports rolling in, although from mostly smaller stocks. The action yesterday was quite choppy and some of the recent winners acted poorly, but overall the market environment continues to favor selective stock picking. It is fairly narrow, but there continues to be an appetite for some speculative trading in secondary names.
Keep an eye on the solar sector today, which is reacting to positive news from First Solar (FSLR) and SunPower (SPWR). My stock of the week, SunEdison (SUNE), is perking up as well in front of its analyst meeting today.
Early indications are flat once again, but we should wake up before Yellen's appearance around 10 a.m. ET.
