The phrase is trite and overused, but what we had today was a "stock pickers" market. The indices looked lackluster, but under the surface there was some very energetic action, especially in biotechnology. Another overused word is "bubble," but it isn't a stretch to characterize some of the action in that group as "bubbly." Stocks such as Coronado Biosciences (CNDO), Amicus Therapeutics (FOLD), Juno Therapeutics (JUNO) and Kite Pharma (KITE) had huge moves as momentum traders continue to pile in.
The rest of the market was downright sleepy by comparison. It wasn't bad action, but the indices flatlined for most of the day. Names like Facebook (FB) and Twitter (TWTR) attracted some attention, but at least 80% of the momentum action was in biotechnology names. Biogen Idec (BIIB) reports some very important news tomorrow on its Alzheimer's drug, and that is going to have some influence on the sector.
Overall, there was nothing wrong with the action today. The bears will spin it as stalling action to indicate that Wednesday's flurry of buying was a blow-off move. That view does deserve a little attention given the frothiness in biotechnology, but this market is acting much like it has before on a dovish Fed. It has been a mistake to think market players are suddenly going to flee when they have Janet Yellen and the gang backing them up.
At this point, it's the bulls' game to lose. They did nothing to undermine the strength on Wednesday and there are indications that underlying support is solid. I'd like to see some momentum action outside of biotechnology, but the level of speculation there is a sign that there is quite a bit of hot money looking for a place to go.
Have a good evening. I'll see you tomorrow.
March 19, 2015 | 12:55 PM EDT
Stick With the Mindless Bulls
- · Never underestimate the power of momentum.
Many market players were anticipating that the Fed decision on Wednesday was going produce a major change in the character of the market. It was logical to conclude that the withdrawal of "patient" and the implicit indication that interest rates would soon rise would produce at least some momentary disruption for a market that has been riding the Fed wave for years.
There are plenty of market maxims that work pretty well, but none has been more effective than, "Don't fight the Fed." The end result after yesterday is that there is still no reason to embrace a shift to a more hawkish bias. The Fed is in the same place it has been for years, which means we need to stick with a bullish bias.
The action today is pretty typical of what happens following Fed meetings. We had some mild profit-taking after the frenzy in the last two hours yesterday, but there is good underlying support and quite a few pockets of momentum. While most sectors are down, my momentum screens are running about even and some of the biotechnology names are red hot.
The biotechnology sector is a particularly good example of how difficult it can be to time a top in a hot sector. The group looked frothy back in February but has run another 10% since breaking to highs back around Feb. 19. The mindless bulls that stayed with the trend have done well, while the intellectual bears with all their erudite arguments have had their clocks cleaned.
The lesson is that you simply cannot underestimate the power of momentum. There are signs that it is rebuilding in the market following the Fed news, so be very leery about being sucked into the top-calling game by those genius bears who are happy to tell you why trend-following investors are fools.
Mar. 19, 2015 | 10:39 AM EDT
Biotechs Keep Burning Bright
- Stick with the price action right in front of your nose.
While the indices are digesting yesterday's Fed frenzy, there is some interesting speculative action under the surface. Biotechnology is on a rampage again and there are clear signs of underlying support, although breadth is running a bit weak with 2,200 gainers to 3,100 losers. Oil is under pressure again and precious metals are weak, but we have leadership in the bios, chips and solar energy, which is where the hot money goes when it is looking for action.
Plenty of bears are hoping that the Fed's surprise dovishness will be quickly forgotten, but they are forgetting how much this market loves to love the Fed. Janet Yellen has given the market what it wants, and that has consistently helped to keep a bid under the market.
The bears have the same arguments that they have had for years about how valuations are high, the economy slow and interest rates are certain to start heading up but no one has been able to time the market based on those macro issues.
If you want to master this market you have to stick with the price action right in front of your nose and, right now, it is more positive than negative.
I'm kicking myself for not jumping on early weakness in biotechnology but recent Stock of the Week, Lion Biotechnologies (LBIO), continues to do well. Second Sight Medical Products (EYES), the bottom-fishing play I highlighted recently, is waking up, and a number of other names I've discussed recently, such as Vasco Data Security International (VDSI) and JinkoSolar (JKS), are also doing well.
I'm looking to add long exposure as the day progresses. It is already looking like support is building and the action is turning back up.
March 19, 2015 | 7:08 AM EDT
Watch for the Dip Buyers
They usually drive the markets higher after Fed news
"Just because we removed the word patient from the statement doesn't mean we are going to be impatient".
--Janet Yellen
The Fed triggered a surge in stocks on Wednesday, with a downbeat economic analysis. It was well anticipated that the new FOMC policy statement would eliminate the language about being patient before raising rates, but it was not anticipated that the Fed would present a number of good reasons why it would remain patient nonetheless. The change in language gives the Fed greater flexibility, but it made it clear it was still not going to be acting in the immediate future.
At the end of the day, nothing was much different from what the situation has been for a number of years. We still have a Fed that is worried about a slow economic recovery and the risk of deflation. The Fed policymakers are in no rush to start raising rates and seem quite concerned about market reactions.
The dovish Fed not only sent equities higher but it also caused the dollar (UUP) to tumble and bonds (TLT) to soar. The big question is whether we can expect sustained momentum now that the issue of the Fed's level of hawkishness has been temporarily resolved.
Unfortunately, we will have little respite from the Fed guessing game. Market pundits are already chattering about when that first rate hike will occur, and despite the dour view of the economy many are still looking for it to take place within a matter of a few months. The market is going to stay highly focused on this issue, but those that favor the dovish view continue to have the wind in their backs.
Typically, this sort of movement on Fed news has the tendency to create more underinvested bulls who end up providing technical support as they look to build more long exposure. We've been through this the cycle many times in the last few years. The dovishness of the Fed drives tremendous support for the market and provides a very favorable environment for dip buyers. The dip buyers become so aggressive, that the pullbacks barely occur and that sucks in folks that are forced to chase.
The big test of this market now will be to see how dip buyers act on the pullbacks. If they don't materialize as they have in the past, then conditions are undergoing a change, but if that support stays persistent, then the chances of V-shaped action are high.
There are a few other issues of interest at work this morning. Oil is under pressure again after an OPEC minister admitted that they had no choice about continuing production at current levels because they can't afford to lose market share. We also have problems in Greece bubbling up again, which may gain some traction and Apple (AAPL) is added to the DJIA, which should cause a spike in volume.
Hopefully, traders can focus a bit more on stock picking, now that the Fed drama is behind us. The market has still not returned to a full blown uptrend, but there should be some interesting developments, now that market players no longer need to worry about the Fed. I'll be digging through the charts and watching for volume moves out of bases today. The Fed has cleared the air and now we'll get to see if the buyers go back to work like they have so many times before.
We have some slight weakness as yesterday's euphoria fades, but watch for the dip buyers to show up quickly on a weak open.
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