The Nasdaq missed its 11th straight positive close by 0.03%, but the pattern of weak opens, early dip buying and a spike in the final minutes of trading played out once again. Despite the flat indices, breadth was positive again and we had some solid leadership from biotechnology.
It isn't surprising that this very consistent market is causing a high level of complacency. We've been moving up so slowly and steadily for so long that it has lulled quite a few folks into thinking nothing could possibly go wrong. That has been the smart move, but we have to watch very carefully for a change in the pattern. We did have one dip this afternoon that surprised some bulls, but in the bigger scheme of things it didn't even qualify as a blip.
Unlike many market players who love this sort of one-way action, I'm rooting for higher levels of volatility. This sort of action is the basis for the old saying, "Everyone is a genius in a bull market." It is pretty darn smart to stubbornly stick with the trend, but a little variety does give traders a better chance to rack up some relative performance.
This market is going to generate more and more top calls, as it is painfully obvious that it is extended on light volume. That gives the attention-seeking pundits something to do, but for those of us focused on making money, the key is to stay with what is working until it stops working.
Have a good evening. I'll see you tomorrow.
Feb. 25, 2015 | 1:16 PM EST
Market Keeps Following a Pattern
- · Will it have another last-hour spike?
As I've discussed in my prior posts, this market has had an extremely consistent pattern for 10 trading days now and it is playing out perfectly again today. We start slightly weak, the dip buyers jump in and then we slowly trade up the rest of the day. We typically have a little last-hour spike to top it off.
Breadth has improved from early levels, but the action is slow and volume light, which are all typical components of the recent action. There are some pockets of momentum, but for a market at all-time highs, it's a bit odd that we only have about 250 stocks making new highs on the NYSE and Nasdaq combined. That certainly isn't a sign of wild momentum.
If you are already heavily long, there isn't a whole lot to do but stay with the trend and wait for something to shift. If you are underinvested, which seems to be quite common, it can be a major struggle trying to put money to work. There are plenty of traders who are unconcerned about buying when we have 11 straight days of gains, but it is very tough for fund managers who prefer to reduce their cost basis rather than chase strength.
I have a few odds and ends on my radar, but I'm waiting for the final hour before I do much. I really wish I could share the excitement of the indexers and perma-bulls, but from a trading standpoint this slow melt-up is downright boring.
Feb. 25, 2015 | 11:00 AM EST
The Dip Buying Continues
- · The bears cannot gain any downside traction.
The pattern of weak or flat opens quickly followed by dip buying continues. Typically, now we slowly move up the right of the day and then have a final flourish of buying into the close. The bears simply have no ability to gain any downside traction.
Breadth is mixed. It is positive on the NYSE by about 400, but it is even on the Nasdaq. We have biotechnology, solar energy and precious metals on the upside while drugs, oil and chips are lagging. Nothing is moving much, but the momentum lists are showing some slight relative strength.
Basically, what we have is a market that is confounding the anticipatory bears and keeps sucking in more underinvested bulls that have had a hard time putting capital to work. You have to wonder when we might have a shakeout, but missing out is even more troubling.
I continue to ride the solar trades that have been my stocks of the week. Both First Solar (FSLR) and SunEdison (SUNE) are still running. I also added to Second Sight (EYES) and GrubHub (GRUB), as well as small biotechnology plays Ariad Pharmaceuticals (ARIA) and Idera (IDRA).
Until the pattern of this action shifts, there simply is no reason to do anything but to keep on looking for buys.
Feb. 25, 2015 | 8:20 AM EDT
It's 'Groundhog Day' Today
- But unlike Bill Murray in the film, traders actually like it.
"What would you do if you were stuck in one place and every day was exactly the same, and nothing that you did mattered"?
-- Bill Murray in 'Groundhog Day'
The Nasdaq is now up 10 straight days in a row but what is most significant is how consistent the action has been. Practically every day during the run, we have started a bit slow or even dipped and then gained traction during the day and closed near the highs. Not only have we closed higher every day but we have never closed lower than the open.
For most of the run, the credit has gone to optimism that a deal would be made between Greece and the European Union. That was finally cemented yesterday, but rather than produce a "sell the news" reaction, we shifted focus to Janet Yellen and the Fed.
Janet Yellen has been another font of consistency in this market. Since her appointment she has continually reassured the market that the Fed was in no big rush to raise interest rates. Yesterday she told us once again that the economy is improving but inflation is low and that the Fed would continue to look to the economic data before it raised rates.
Overall market players have been quite sanguine about macroeconomic matters. They are as complacent as they have been at any time in the last six years or so and are unconcerned about the potential for higher rates or the amazingly slow economic recovery. We have the same conditions that have been in place for years, although we are very slowly moving toward higher interest rates at some point.
In addition to the complacency about the big picture, there is an equal lack of concern about individual stocks. Apple (AAPL), with its huge market cap, has been helping to drive the indices higher and we have had a consistent high level of speculation in biotechnology. Recently we have also had semiconductors take more of a leadership role, but a poor report today from Hewlett-Packard (HPQ) may cause some issues there.
Bill Murray lamented that the day he was living over and over was a snowy February in Pennsylvania rather than on the beach in the Virgin Island. Most market players are pretty pleased with what they are seeing each and every day. We just keep on climbing higher and if you don't screw it up by trying to time a top or coming up with pessimistic bearish theories, you can make some money.
Many traders would love to see more volatility and there are plenty of complaints about how unnatural and machine-driven the action is, but the trend is up and if you don't over-think it you will be fine.
And once again we have a slightly weak open on the way. Janet Yellen is going to repeat what she did yesterday and testify once again. Yes, it sure does look just like yesterday all over again.
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