If you have turned on the business television channels today, I don't need to tell you that the big headline is that the Nasdaq Composite hit 5000 for the first time in 15 years. It is interesting that it has taken so long to return to that level, but it really is irrelevant to market players trying to produce good returns. The news provides fodder for reporters that need something to talk about, but it is irrelevant to those of us who are trying to navigate the action.
One interesting thing is how different the mood is now compared to what it was like in 2000. There is almost no emotion compared to what we had back then. I'm not sure it's accurate to call the action "joyless," but there sure isn't much celebration over the fact that the indices are making new highs.
The Nasdaq doesn't look much like it did 15 years ago. It is mainly being driven by big-cap names such as Apple (AAPL) with very reasonable price-to-earnings ratios compared to what we saw in 2000. There are some expensive stocks, but we don't have ridiculous valuations based on page views or comparative analysis.
Now that it is back at the 5000 level, should we start looking for a market top? There is nothing magical about the current levels of the indices. They can easily keep running. Yes, they are technically extended and we sure could use a rest, but we are riding a trend and we all know that can continue much longer than seems reasonable.
We are going to hear quite a bit about Nasdaq 5000 over the next few days. While it is interesting, it is meaningless. Just stay focused on the price action and keep in mind that that the market is riding a trend. It won't last forever but trying to guess when it will end is a waste of energy.
Have a good evening. I'll see you tomorrow.
March 02, 2015 | 1:59 PM EST
Nasdaq Hits 5000 ... and That's It?
- Drifting sets in as the index retreats.
The folks in the business media are having a great time talking about the Nasdaq finally hitting the 5,000 mark, but it looks like the algorithms were programmed to run us up to hit that level and then shut down. There is still plenty of green out there, but we are off the highs and there is some drifting. Momentum stocks continue to do well, but virtually everything is a chase at this point.
What is most interesting about the action is that even the bears seem to have given up fighting it. The trend has been so consistent for so long and even though it feels extremely complacent it has been impossible trying to time a top. The folks who usually give us a long list of negatives and look for contrary signals have been wrong for so long they aren't even trying anymore.
While the media folks are excited about Nasdaq 5,000, it is interesting to compare what it felt like 15 years ago when we were last at these levels. The market is nothing like it was back then. The excitement that used to exist has never returned despite the efforts of many market pundits to stir up emotions.
The big difference now is that the small investor has never fully returned and those who have don't feel like they have an edge. Back in 2000, individual investors felt they could control their destiny and make big money. There aren't many folks who feel that way now, and that is why we have so many joyless rallies. The machines drive the action and while some folks have done very well by hitching a ride, they don't feel it in the same manner as before.
The only advice you need right now may sound trite and simplistic, but it sure is working well: The trend is your friend.
March 2, 2015 | 10:34 AM EST
Technical Setups Are Challenging
- · The market needs a poor day or two.
The pattern that has been in place for almost the entire month of February continues on the first day of March. We had a dull start but the dip-buyers jumped in and we started the intraday move higher.
Breadth is positive, particularly on the Nasdaq, and market players continue to be very sanguine. The mood does seem overly complacent, but that has been the case for a while and it is impossible to time the market based on that.
We have some leadership in biotechnology, semiconductors, retail and solar energy, which is a good group of sectors to see. Oil is lagging, but there really isn't any notable sector weakness.
What is most interesting is that the momentum screens are almost totally green. My list of high-beta, big-caps is about 9-to-1 positive. There are names like NXP Semiconductor (NXPI), ANI Pharmaceuticals (ANIP), Jazz Pharmaceuticals (JAZZ), Avago Technologies (AVGO) and Ambarells (AMBA) that are leading.
I don't have much new going on, so far. GrubHub (GRUB) is of potential interest, I have Vimicro (VIMC) as a technical buy and am watching my stock of the week, Lion Biotech (LBIO), for some upside, but I'm not doing anything very aggressive. Until this market actually has a poor day or two, the technical setups are going to be challenging.
March 2, 2015 | 7:10 AM ET
The Trend Upwards Continues
- There doesn't seem to be any reason for a sudden shift
"The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand -- a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers."
--Ben Bernanke, Former Chairman of the Federal Reserve.
We kick off the third month of 2015, and the big question we face is: will the consistently positive action of February continue, or do we return to the choppiness we had in January?
Since the market bottom in 2008, the market has had a tendency toward very streaky action. We've had quite a few runs of positive action that has resulted in some illogical and hard-to-believe V-shaped moves. The move over the past few weeks was a classic example of how the market can run straight up on light volume and leave both bulls and bears puzzled.
What has been most notable about the recent action is the consistency of the intraday action. For several weeks we have started a bit slow but the dip buyers would jump in and we'd work higher before we'd see an upward spike in the last hour or so of trading.
Just take a look at the daily chart of the Nasdaq for proof of this pattern. You will see that only twice during the entire month was the close lower than the open. In almost all other cases the market was not only positive both intraday and overall, but ended up closing near the highs.
Back January, we had a similar six-day run after the European Central Bank announced its bond-buying program, but it was very choppy action overall and the indices were down for the month. So, which pattern will we follow, February's or January's?
The bulls have a boost this morning as China keeps the monetary easing party going with a rate cut. According to Bloomberg, China is the 17th central bank to cut rates in 2015. There is fear of deflation around the world driving the rate cuts. Why should we care that the Fed is mumbling about rate hikes when the rest of the world is still spiking the punch bowl?
While the Fed has been sounding a bit more hawkish, the economic news continues to be weak enough to prevent any concern about an immediate rate hike. GDP growth for the fourth quarter was revised downward to 2.2% from 2.6% and the Chicago PMI numbers were shockingly bad. There are still few signs of the type of inflation that worries the Fed, so talk about rate hikes is being ignored by the market. In fact the big worry is deflation, not inflation.
Overall, the market is in much the same position it has been in for many years now. We have poor economic news but aggressive central banks providing cheap money and there are few other investment alternatives to equities. That has been the driving force for many years, and there doesn't seem to be any reason for a sudden shift. If things do start to change, we'll have enough warning to start repositioning.
For now, the trend upward continues and the biggest challenge is trying to find stocks that aren't too technically extended and offer a decent entry point. While the very slow walk-up of the indices is welcomed by the bulls, it does create some issues for traders who are looking for entry points. There are not many great chart setups right now, which means we just have to keep digging for some new opportunities.
We are set for a positive open and way too much coverage of Warren Buffett. Oil is rolling again and we'll need to monitor that action.
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