It is truly remarkable how this market consistently shakes off any negatives and goes straight back up as if there isn't a worry in the world. It must infuriate the bears who have no shortage of good arguments, but the market simply doesn't care about big-picture negatives for long. If anything, they are celebrated for providing buying opportunities for chronically underinvested bulls.
It was fairly flat action this afternoon, but the buyers hung on to gains and we had very strong breadth. These quick moves never seem to trigger much quick flipping or selling. In fact, they simply make the underinvested bulls hungrier for new buys. The worry is that the bounce will continue and that there won't be an opportunity to enter if you don't pay up right now.
Tomorrow we have the Fed interest rate decision and the first press conference by Janet Yellen. The bears are going to be hoping for some sort of "sell the news" reaction, but the market typically has done quite well on Fed day. It is going to take something very surprising to shake up the bulls and it is doubtful that the Fed is going to upset the market. Even if they do, you can probably count on the dip-buyers to provide support.
A little variety would be nice for a change of pace, but you have to admire the consistency of this market behavior.
Have a good evening. I'll see you tomorrow.
March 18, 2014 | 1:15 PM EDT
Classic V-Shaped Action
- My game plan is to stick with short-term trades and stay flexible.
The most interesting thing about today's market action is the appetite for stocks. It is very easy to come up things to worry about, but market players just don't care. The big fear continues to be fear of being left behind. No one seems to worry about being caught in a reversal. In fact, many are rooting for a reversal so they could do some dip-buying.
This is classic V-shaped action once again and what is always surprising about it is how it comes on poor volume. If you have tried to gauge the sustainability of a move based on the level of volume, you have likely been misled. Breadth is more important and that has been very strong at better than 2-to-1 positive for the second straight day.
The tough thing about this market is that you really can't have a high level of confidence in sustained upside. There is substantial headline risk from Russia, China and the Fed. Any of them can provide a convenient excuse for selling and you can be assured that traders have their fingers on the eject button.
My game plan is to simply stick with short-term trades and stay flexible. I don't see any reason to be overtly negative, but you have to be cognizant of the high level of risk. The potential for a negative surprise is quite high.
The most interesting action I see right now is in the alternative energy sector and I'm building a position in Quantum Fuel Systems Technologies Worldwide (QTWW), which produces storage tanks and fuel systems used in alternative fuel vehicles. The company has seen revenue increase 126% in its most recent quarter and it is moving toward profitability.
March 18, 2014 | 8:20 AM EDT
Hunting for the Hot Stocks
- Before the rest of the momentum money piles in.
Traders are building on Monday's bounce but it is becoming harder to find sustained momentum. China names are seeing pressure due to talk about the possible bankruptcy of a Chinese developer. However, breadth is still solid and plenty of hot money is hunting for action, but I'm not seeing as much speculative juice as yesterday.
I've been pushing to for some action in names like Unilife Corp. (UNIS), Quantum Fuel Systems Technologies Worldwide (QTWW) and FutureFuel (FF), but I'm moving incrementally and giving myself room to add should we see softening later in the day. My main concern is being too aggressive with buys just to make something happen.
It feels like a day-traders' market right now, as I really don't have much trust that moves will be sustained. What is moving this market isn't fundamental news but traders with cash who want action. They can change direction quickly, but what we are doing right now is trying to find the hot stocks before the rest of the momentum money piles in.
There are obvious bids under this market and I'm definitely not interested in shorts, but I'm more short term than normal and not inclined to build longer-term positions.
March 18, 2014 | 8:20 AM EDT
Hard to Bet Against These Straight-Up Bounces
- The bears seem likely to remain frustrated.
"Routine, in an intelligent man, is a sign of ambition." --W. H. Auden
Is the market set up for another routine "V"-shaped bounce back to the highs?
After last week's poor action, the major indices saw a classic oversold bounce on Monday. Breadth was quite good, but volume was weak and there wasn't a lot of energy. Typically such a bounce would be treated with great suspicion -- but, in this market, "V"-shape recoveries have often started with these low-volume, routine bounces.
The bear's response is that this time will be different, and that substantial fundamental issues will prevent a quick and easy recovery. The most obvious concern is that, given Russia's preliminary moves to annex Crimea, sanctions on the former will have a dampening impact on the already-weak European economy.
As I write this, Russian President Vladimir Putin is making comments about how Russia does not need to take other regions. That is giving U.S. futures a bump, as some had been concerned that the remainder of Ukraine would be next. Still, this crisis is far from over.
For fundamentals-oriented bears, another issue of focus will be the Federal Open Market Committee's interest-rate decision, due out Wednesday. The consensus anticipates the Federal Reserve will further taper its bond-buying program, and that would will be an interesting dynamic, as it would signal confidence that the economy really is starting to strengthen. At the same time, it will also serve as further confirmation of the eventual end of quantitative easing, which has been the prime driver behind this market for years.
On a technical level, the market has still not suffered any major damage. The indices have pulled back to support levels, and they are under some pressure, but they have not broken any key levels or suffered any major distribution.
The biggest technical negative I see is the continued lack of leadership. We aren't seeing any key stocks really leading the market right now, and we have lost the hot speculative-driven groups -- biotechnology, solar energy and China-based Internet names.
The good news is that there have been some pockets of speculative action such things as Kandi Technologies (KNDI), Sky-mobi (MOBI) and You On Demand (YOD). I'd like to see that expand out to a bigger group of stocks, but there has been some decent trading nonetheless. More than 200 stocks made new 12-month highs Monday, so strength remains and the dip-buyers continue to lurk.
The bears are looking for a failed bounce to take hold, but as long as the market holds above Friday's lows it will be OK on a technical basis. Even as the technicals look a bit precarious, market players still show an appetite for buying. The underlying bid has been the best thing going for a while, and as long as that persists the bears will remain frustrated.
There is some headline risk out there, and the Fed could shake things up Wednesday, but the "V"-shaped bounce has become such a routine pattern that it's hard to bet against it.