Once again, the market showed us how dangerous it is to be too bearish too quickly when there's a little weakness. The market completely reversed the losses incurred on the Cyprus crisis and Ben Bernanke managed to boost it a little more by doing and saying what everyone expected today.
Most notable about the action was how dead it was following the gap-up open. It had good breadth but volume was pitiful and there wasn't much chasing. The Fed announcement boosted the action for a while, but it gave back most of that by the close and is trading down even further after hours on news of poor earnings from Oracle (ORCL).
The market's tendency to overcome negatives and continue its slow but steady uptrend is quite remarkable. This pattern of behavior has occurred frequently, and its most important aspect is it tends to last far longer than everyone thinks is reasonable or possible. The only way to deal with it is to stick with trending stocks as long as possible. Being anticipatory or even overly reactive is a good way to find yourself out of position.
The poor ORCL earnings report is pressuring the market after hours, but, given the tendency of this market to dismiss negatives, it will probably be an invitation to buy should it gap down in the morning.
Have a good evening. I'll see you tomorrow.
March 20, 2013 | 2:27 PM EDT
No Fed Drama
- My biggest worry is staying awake.
The FOMC decision held few surprises. GDP projections were cut and there is talk about inflation being "well anchored," but the market has barely budged on the news. I can't recall the last time we had such a minor reaction to a Fed policy announcement.
There continues to be a positive bias to the market action, but there is no emotion and the result is being pinned in an extremely tight intraday range. Since the market is in the green, the mood remains sanguine but the slowness of the action is a negative in my book. If the market were trading down, the lack of energy would cause a lot of worry. But since it is still in this very sleepy uptrend, no one is too worried about anything.
We'll see if the late buyers can gun the action a bit, but my biggest worry is staying awake. This is an extremely dull market, which is probably a good reason not to try to short it.
March 20, 2013 | 10:49 AM EDT
Morning Action Is Slow
- I'm itching to put some cash to work.
We have "gap and flat" action so far this morning; the market opened well but there is little additional movement. Breadth is very good and there is plenty of green, but buyers don't seem willing to do additional chasing of this strength.
The lack of emotion makes trading more challenging, which is why I welcomed the Cyprus drama. It may not have been that significant an event, but at least it created emotion and provided improved movement.
What has been particularly remarkable about the market in 2013 is how little fear or worry there has been. Plenty of commentators are willing to tell us how bad things are, but the market has totally ignored all the negatives trotted out by the bears. The only fear that has really mattered is fear of being left out of a market rally.
I raised cash the last couple of days, which doesn't look like a particularly smart move this morning. I'm still holding Sarepta (SRPT), Santarus (SNTS), Goldfield (GV), and StealthGas (GASS) but I'm itching to put that cash to work. I added to a position in Himax Technologies (HIMX), which is shaping up nicely after a low-volume pullback, but the action is so slow I don't have much new popping on the radar.
March 20, 2013 | 8:18 AM EDT
Elevator Going Up?
- It looks like the slow slog higher will resume.
Any idiot can face a crisis -- it's day to day living that wears you out. --Anton Chekhov
The Cyprus crisis is quickly blowing over but the question is whether it triggered a mood shift in the market or just a temporary blip that will be quickly forgotten. The market was grinding very slowly but steadily higher before the "crisis" hit and many market players are anxious to return to the elevator ride they were enjoying, but the news exposed the still-fragile economic situation in Europe and provided an excuse for sellers to lock in profits.
The market has had a strong tendency toward quickly shrugging off these little bursts of weakness. It has been a big mistake to be too bearish too quickly when they occur. I have to admit I would prefer a bigger and longer-lasting reaction to this sort of news as it helps to create better volatility for trading, but you can't stay very negative for very long in this market.
We are going to continue to hear about Cyprus but the debate is shifting. The real fear -- a bank run across Europe -- has been avoided. It is troubling that politicians would come up with the idea of stealing from folks who made the mistake of actually putting money in a bank, but the backlash has been severe enough that idea is not likely to spread too quickly.
Technically, we had two days of very mild weakness, which really did nothing to the uptrend that has been in force since the first of the year. We gave back a couple days of gains but volume has been very light. The bears certainly were unable to generate any real downside momentum, although breadth had been weak and there was some notable profit-taking in places.
What is disappointing from a trading standpoint is that we really didn't have enough pressure for long enough to set up a strong reflex bounce. We never seem to see the sort of emotions that really cause the market to move. We have the media making a big deal over some event but the market reaction is tepid and nothing much occurs. Before you know it, the dip-buyers are slowly pushing the market higher again and the big worry is not having enough long exposure.
In fact, being underinvested continues to be the primary driving force in this market. After the little two-day pullback, the folks who took gains are suddenly concerned that they are going to miss out as the market resumes its run.
We have the FOMC interest rate decision and a press conference by Fed chief Ben Bernanke, which should shift the focus away from Cyprus a bit, but there aren't any big expectations. We know that the Fed plans to continue to be accommodative and the fact that we've had a little economic improvement recently doesn't matter much. There will be talk about how and when the Fed will start to reverse the quantitative easing program, but it is far enough down the road that the market is going to ignore it. I don't expect to see anything particularly negative for the market from the Fed or Dr. Bernanke today.
I've raised cash the last couple of days and I will be looking hard for places to put it. I don't have much on my radar but we'll see what develops. It looks like the slow slog higher will resume.