After a couple of weak days, the indices managed some minor gains on so-so breadth. That had the bears feeling increasingly confident, but they are ignoring quite a bit of strong action in individual stocks. Biotechnology roared again and solar energy had even bigger gains. Retail and banks were also on the positive side.
It is very understandable why the bears are increasingly shrill about the possibility of a top, but there is still plenty of speculative action out there. Traders want action and they are finding it in various places. The indices may look lackluster, but trading has yet to die.
I don't want to sound overly confident, as there are some warning signs, but the intraday bounce and the close near the highs were something healthy markets do. Volume has been poor and we have leaders like Apple (AAPL) that are slipping a bit, but we still have an uptrend in place and there is no real technical damage.
Tomorrow morning we have the monthly jobs news. A strong number is going to excite the bears, who will start talking about interest rate hikes again, but with inflation still quite low the Fed isn't going to be pushed to move very fast. We may actually be back in the situation where both good news and bad news will be spun as positive.
The bearish ranks are growing as more and more folks are trying to time a top, but given their track record that is not a cause for worry.
Have a good evening. I'll see you tomorrow.
March 5, 2015 | 1:16 PM EST
Machines vs. Dip Buyers
- · While the machines work the downside, the dip buyers are lurking.
Market breadth is still running positive as biotechnology and solar energy lead the momentum, but the dip buyers are flipping into strength and looking to test intraday lows. The market has been making little progress over the past seven trading days and that is making the bears more confident that maybe this time a top really is forming.
While the action is soft and the move in biotechnology seems downright frothy, there still is insufficient evidence to declare that a top is occurring. The process may be starting but it is still very possible that this is simply healthy consolidation after a good run. The bears have consistently been overanxious to declare a top, which tends to make them celebrate too quickly when there is weakness. It is understandable since they have been rewarded so infrequently, but this sort of ebb and flow is perfectly normal and quite healthy.
I'm not a fan of contrarian thinking since it is so tough to apply on a timely basis, but the action in biotechnology names is a bit worrisome. The group has been the primary leader for quite a while and some of the moves today has the feel of blow-off action.
Hitting a new intraday low in the afternoon is never a good sign, but we'll see how the market closes. If you are concerned, tighten up stops and play aggressive defense. There are negatives that warrant caution, but the big picture has not yet shifted. The machines are working the downside, but the dip buyers are still lurking.
March 05, 2015 | 10:34 AM EST
Biotech and Solar Remain Hot
There's a good chance for more dips today.
The opening gap was sold, but that was fine with the dip buyers who only let the indices stay in the red for a few minutes. While breadth is only about 2,700 to 2,300 positive, there is aggressive trading in biotechnology and solar energy again. These have been the favorite momentum groups this year and continue to attract the hot money.
In addition, there is some decent action in retail, drugs and chips. Oil lags but momentum names are doing well, with stocks such as bluebird bio (BLUE), Juno Therapeutics (JUNO), Biogen Idec (BIIB) and LinkedIn (LNKD) leading the way. There also is some better action in cybersecurity names such as Tableau Software (DATA), VASCO Data Security (VDSI) and CyberArk Software (CYBR), which is a group that I'm interested in as it sets up.
Second Sight (EYES), which I mentioned yesterday, had some surprise news and is leading the charge. I took some partial profits but will let half my position run. I added to recent stock of the week, SunEdison (SUNE), on the solar strength and also took a position in small biotechnology play CytRx (CYTR), which may see some sympathy as a cancer play.
The indices aren't making too much additional headway but the trading in individual stocks is making up for it. It is fairly narrow and I'd stay selective with buys. The potential for some more dips is high.
Mar. 05, 2015 | 6:45 AM EST
No Reason to Rush for the Exit
- But we need to stay vigilant and watch the market closely.
The beginning of evil is the lack of vigilance.
--Saint Abba Poemen
The market has been undergoing some struggles in recent days, but there is still nothing bad enough to endanger the recent uptrend and change the bullish character of the action. The S&P500 has finished in the red five of the last six days, but so far the selling has been quite mild and no major damage has been done. In fact, it can be argued that the action is quite healthy, as it helps extended stocks to consolidate and helps to diminish the recent frothy sentiment.
Negativity can be a good thing for the market as it helps to ensure that there is cash on the sidelines that will help to provide underlying support. The bears have been trying for ages to time the market based on the argument that sentiment is so positive that there is no cash in reserve to keep driving the market higher. They have totally underestimated how much idle cash there is due to near-zero interest rates. We have never even been close to having the sort of sentiment that signals that things are so overheated we are going to fall apart. The recent struggles only help to ensure that we continue to climb a wall of worry, with the main worry being fear of being left behind.
In February the bulls enjoyed numerous rallies as Greece was saved over and over again, and various central banks around the world joined the quantitative easing party. Recently we had both China and India making moves to increase liquidity. China lowered its growth targets again last night, which guarantees that more cheap cash will be rolled out.
Despite the dovish central bankers around the world, we are going to shift the focus in the U.S. back to the potential for rate hikes later this year as the February employment numbers are announced tomorrow morning. The Fed has put much emphasis on these numbers despite the many economists that question how reflective they really are of an improving economy.
The big debate right now is whether the recent improvement in a number of economic measurements really is indicative of an economy that is improving enough to justify raising rates. The Fed may be just paving the road for hikes quite a way down the road, but there is some nervousness when any economic news comes in better than expected.
The point is that whether the recent consolidation resolves itself as a foundation for more upside or the start of a topping process is likely to be determined by the market's view of the Fed. The jobs numbers on Friday morning are going to have an impact on that view. The positive news is that even if the Fed is more hawkish, there is still sufficient dovish action by central bankers around the world to offset it to some degree.
At this juncture, we simply have to let the price action be our guide. While things have been softer lately there is no reason to rush for the exits and make aggressive defensive moves. We simply need to stay vigilant and watch closely, in the event the character of the market does start a more profound shift.
We have minor movement in the early going once again, and not much reaction to the news out of China.
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