The strong market action today was very similar to what we saw last Thursday. The explanation for the strength then was that weak retail reports made it more likely that the Fed would maintain a dovish tone at its meeting this week.
Today, the headline writers seemed to be scratching their heads as to what was behind the buying. There were some weak economic reports this morning but nothing of any real significance. Oil was weak, which typically has been a drag, but that seems to have been offset by the weaker dollar.
The lack of any definitive headlines tells you what is really driving the market. It is the computer programs hard at work. Most of the time people really don't appreciate the extent to which we are machine driven because the headlines always seem to have a good reason for whatever movement there is. Typically, it is pretty easy to craft a strong argument for why the market is up or down.
Today was a good example of machines at work. The action was lower volume but was primarily in one direction and led more by indices that key stocks. The key thing to keep in mind is that it has nothing to do with fundamentals. It is based on technical and machines.
After last Thursday we had weak action the next day. I'm not going to predict a repeat but the chances of random behavior is quite high. The algos may continue to push things into the Fed but then it will become more difficult to create this type of action.
The bulls will tell you this is very bullish action, the bears will tell you the end is near and the pragmatist will tell you that the computers are in control and they are neither bullish nor bearish.
Have a good evening. I'll see you tomorrow.
Mar. 16, 2015 | 1:23 PM EDT
What, the Market Worry?
- Machines making the trades don't get emotional.
If market players are worried about a hawkish Fed on Wednesday, you wouldn't know it from the price action today.
Breadth is only so-so on the Nasdaq, with 1400 gainers to 1200 decliners, but what is most notable is the complacency. There simply isn't any major worry or concern out there. The usual contrarian bears are still trying to call a top, but there is nothing new there.
One of the reasons that there so seldom seems to be nervousness or worry is that we are dealing with machines that aren't impacted by human emotions. The computers have buy programs at work today, and that creates this atmosphere that seems so lacking in any concern. They don't worry about timing turns, as they are actually helping to create them.
We had very similar action last Thursday. That led to a quick reverse on Friday, and you have to wonder if that sort of volatility is going to occur again as we move closer to the Fed decision.
The market is obviously acting well and the folks who are loaded up with indices are happy. As far as stock picking for active trades, it is much more limited, as many stocks are extended on light volume and are not set up well. Of course, rooting for a correction to fix such things is a costly endeavor.
March 16, 2015 | 10:26 AM EDT
Dollar Calls the Shots
- · The weaker greenback boosts the indices.
The stock market's direction has largely been determined by the U.S. dollar recently. Just look at PowerShares DB US Dollar Bullish ETF (UUP) if you want an explanation for why the indices are up or down. It looks like the computer algorithms are programmed to buy or sell based on movement there.
The market today looks just like it did on Thursday, when the dollar was also weak. Breadth is solid as it approaches 2-to-1 positive, and biotechnology, retail and chips are leading the way while oil remains sluggish. Momentum stocks are acting well but the mighty Apple (AAPL) isn't helping much.
While the action looks good overall it appears to be mainly index driven, rather than stock driven, which is nice if you are trading index ETFs but doesn't benefit stock pickers much. There aren't many good setups.
I continue to ride my recent stocks of the week, Lion Biotechnologies (LBIO) and SunEdison (SUNE). Advaxis (ADXS) is on my radar with a nice looking cup-and-handle pattern. And I like the way MEI Pharma (MEIP) is developing.
March 13, 2015 | 7:38 AM EDT
The Explanations Are Suspect
- Look beyond the obvious reasons for Thursday's rally.
"Anticipation is sometimes more exciting than actual events."
One of the most consistent tendencies of the market in recent years is a positive reaction to announcements by central bankers. The market loves to love the Federal Reserve and European Central Bank, and there is seldom a negative reaction to anything that they do.
This week brings a particularly good test of that dynamic when the FOMC issues its interest rate decision and policy statement on Wednesday at 2 pm EDT. The Fed is no longer dependably dovish and the big issue this time is whether they drop the language about being "patient" with rate hikes so that they will be in position to "lift off" in the near future.
There is a high level of anticipation that the "patient" language will be removed, but traders who have counted on a negative reaction to the Fed have regularly been disappointed. The market always seems to find a way to spin Fed decisions in a positive manner.
This past week was a good example of how the market tends to make positive projections about the Fed. We've been struggling on the higher dollar but the announcement of poor retail sales Thursday was used to bounce the market sharply higher. The logic given by the business press was that weak sales might prevent the Fed from raising rates for a few more months. That is dubious logic as there obviously were weather issues affecting retail sales, but the bulls were ignoring something they usually embrace because they are so anxious for the Fed to stay on hold.
The market has already been showing signs of stress. The S&P 500 is sitting just below key support at the 50-day simple moving average and has been struggling on worries about the strong dollar, struggling oil and the potential for higher interest rates. We have had a number of distribution days lately, with the market declining on increased volume. While we are not in a full-blown downtrend, there are struggles and there is risk that the Fed could push things over the edge.
The bulls are looking for the Fed to keep things vague enough so we don't have to worry about the inevitable interest rate hikes that lie ahead, but it is moving to the point now that we can't deny that the foundation is being built for the unwinding of QE. The removal of the "patient" language will be hard evidence that it is inevitable.
While the overall market has been under some stress, there have been pockets of trading opportunities, especially in biotechnology. The number of setups and opportunities is declining, however, and there isn't much to do but to respect that and not force trades.
We have some early strength this morning but the focus will quickly turn to the Fed. Watch for volatility as market players try to anticipate developments.
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