The market had a very good excuse for a selloff today, but there was no stampede for the exits or any sign of panic. The dip-buyers stepped up, and many were disappointed that we didn't have more downside and better entry points.
Breadth improved from 4:1 negative to 9:5 negative by the close and some big-cap momentum names like Tesla (TSLA) and Apple (AAPL) were solidly green. Small-caps outperformed with a shallow pullback of just 0.53%.
If it weren't for continued uncertainty over the Russia-Ukraine situation, it is likely that the buyers would have ramped up into the close, but there are sufficient unknowns about the situation to keep them cautious.
The most notable thing about the action today is how anxious the buyers were to jump in on the pullback. There is no fear of major downside. The fear is not putting enough capital to work fast enough.
It is going to be interesting to see the news overnight, but you can bet there will be plenty of buyers eager to jump in if we have another gap down in the morning.
Have a good evening. I'll see you tomorrow.
March 03, 2014 | 2:01 PM EST
- Another day of weakness could produce good entry points.
The tendency of this market for a while has been to forget negatives quickly. It is often said that the market has no day-to-day memory, which is one reason the dip-buyers are so eager to dive in.
The big question is whether the Russian-Ukraine crisis is creating uncertainty that will pressure markets overnight. Conflicting news reports seem to indicate it's unlikely that there will be a clear resolution very quickly.
Despite softness in the indices, many of the pullbacks are shallow and there doesn't seem to be a high level of fear. Breadth has improved to 1,700 gainers to 3,750 decliners but, as always, it's the close that counts. I'll be surprised if market players will load up given the overnight risk, but they had a warning Friday as well and finished with a closing spike.
I'm doing very little new buying, but I'm optimistic. Another day of weakness would go a long way toward producing good entry points. We need this action, but too often it bounces back quickly and it is tough to jump in. Keep some powder dry, but be ready to start putting it to work fast.
March 03, 2014 | 10:44 AM EST
- The bulls need to show fortitude soon.
After gap-down reflexive dip-buying started the day, the easy trade is over and things are trickier. The slightly better-than-expected ISM manufacturing number hasn't had much reaction so far, but we are holding on to early gains so far. Breadth is steady at around 4:1 negative, with precious metals the only major group doing anything to the upside.
The key now is the intraday lows. If those levels are breached, the sell stops will kick in and the bears will press. Pressing shorts has been a very tough play, but a failure of the initial bounce would scare out some bulls and allow the shorts to press a bit.
I admit that I'm not unhappy to see this selling. We need a shake to set up new opportunities and allow for new setups. This morning I've been trading Power Plug (PLUG), E-Commerce China Dangdang (DANG) and my stock of the week, JinkoSolar (JKS). The key is to take partial gains if and when you have them and keep positions small and stops tight.
We are fading back to the opening levels as I write and the bulls need to show fortitude soon. So far, this is just healthy corrective action -- but it can turn into something dire quickly if the underlying support dries up.
Focus on the key stocks you want to build and move slowly. There isn't any rush to deploy precious capital.
March 03, 2014 | 7:56 AM EST
Watch if the Bounce Is Faded
- The essence of downtrends is failed bounces.
"I go to the gym, I swim daily and from time to time I meet with friends and do extra-curricular stuff." --Vladimir Putin
With the market gapping down on the Russian threat to invade Ukraine, traders are asking just one question this morning: how fast do we bounce back?
What market players fear the most isn't being caught in a downtrend. It is being left behind when the market quickly bounces back. Fundamental issues and global concerns never seem to keep the market down for long, and when we do bounce back it is so fast and furious that there is little time to jump back in.
The market has been exhibiting some signs of fatigue the past week, but couldn't find any good reason to pull back. We have a good excuse this morning and now we are finally seeing much-overdue profit taking. The good news is that we badly need a dip to shake out weak holders, reset the charts and cool off sentiment. A pullback is bullish because the never ending uptrend was not healthy and not sustainable.
What will be very interesting to see this morning is how quickly the dip buyers start doing their thing. In recent years a sizable gap down generates a Pavlovian response among buyers. They have so few chances to buy a sizable dip that they rush in immediately when there are some good-size pullbacks.
The main thing we have to watch for is whether the automatic bounce is faded.
The essence of downtrends is failed bounces, which are a very rare thing in this market. But if the character of the market is finally undergoing a shift, that is what we need to watch for. It is only when the overconfident dip buyers are finally caught leaning the wrong way that a real correction will develop.
The lack of fear, which is driven by a flood of liquidity, is the main driving force in this market. Market players are constantly struggling to put capital to work, so they don't fear negative news. Negative news is positive because it allows for better entry points.
So, don't be surprised if this market comes back fast. What typically happens is that we bounce and then, as we hold up, the folks on the sidelines start to worry that they won't see better entry points so they rush in and that results in a V-shaped move.
The media is in quite a tizzy over the news this morning and there is plenty of weakness, but traders are pleased to see some volatility and new trading opportunities. Be ready to move as things develop.