A number of corporate deals helped to set the tone, but mainly it was a classic day of window dressing as the first quarter of 2015 comes to end. Window dressing tends to occur a day or so before the last day of the quarter in order not to be overly obvious about it. I heard many traders comment today that the action had an odd or artificial feel to it, which is what happens when the focus is primarily short-term manipulation by fund managers.
The other notable development today was that the S&P 500 finally broke its streak of non-consecutive positive days. It has been 28 trading days since the S&P has managed two positive days in a row, which hasn't happened in more than 50 years. It just goes to show that we have been experiencing some very choppy action for a while.
The more important issue now is whether two positive days in a row and a pretty decent gain have changed the character of the market action. While it does give the bulls some ammunition, it doesn't totally negate the negative action we suffered last week, especially since it feels driven more by window dressing than a strong desire to add long exposure.
If you are feeling out of step with the action today, you are not alone. While there were obvious positives, it was an odd day and it didn't inspire a high level of trust.
Have a good evening. I'll see you tomorrow.
March 30, 2015 | 1:50 PM EDT
A Good Example of Window Dressing
- · Why don't my stocks know about market strength?
Although I expected to see some window-dressing action today, many of my stocks seem to be unaware of the market strength. The internal action looks fine with solid breadth, and the momentum screens are almost completely green, but there is some random action in individual stocks that is preventing any significant moves.
So often the gap-up opens on Monday seem to lead to slow intraday uptrends. In the "old days," aggressive traders would sell into the gaps and then look to reload on pullbacks, but in the "new" market, the algos just keep running things straight up all day without a pause. The action is rather slow but it is all one-way.
There are some who are skeptical of things like window dressing and option pinning, but the action today is a particularly good example of the former. Fund managers are putting a happy face on a mediocre quarter and that is why there is so much green out there. If you are trying to trade based on charts of fundamentals, you are likely to feel a bit out of step with this sort of action.
I expect the buyers to hold us up the rest of the day, but window dressing will mostly be completed today, which make things a bit more problematic tomorrow.
March 30, 2015 | 10:50 AM EDT
Look Under the Surface
- · Action may look healthy, but remember window dressing.
We have a good sized gap up open and breadth is running quite strong, at 3700 gainers to 1600 decliners. What this looks like is a combination of futures-driven action along with end-of-the- quarter window dressing. The action in many individual stocks seems to be at odds with the indices. Biotechnology is a particularly good example, as the sector faded fast after a strong open. It is still in positive territory, but many stocks are well off early highs.
Despite the strength in the indices, I'm hearing quite a bit of grumbling from traders who don't like the action in their individual holdings and don't see good entries for new longs. The fact that it isn't reflected in the indices only makes it more irritating.
A number of stocks I've been trading recently, such as Twitter (TWTR), JinkoSolar Holding (JKS) and Lion Biotechnologies (LBIO) are acting poorly. With upside being driven by algos, there simply isn't the sort of momentum in individual stocks that is safe to chase. While the action looks healthy to the casual observer, there are a number of issues under the surface that are causing me to stay cautious. Don't forget that end of the quarter pressures cause more manipulative action than normal. If the action doesn't feel right, that is probably the primary reason.
March 30, 2015 | 7:51 AM EDT
Forego the Predictions
- Stay focused on the price action.
"When bad predictions are unpunished, what incentive is there to stop making them?"
--Steven Levitt & Stephen Dubner, Think Like a Freak
After a very difficult week, market pundits are busy making predictions about how things will develop in the week ahead. Quite a bit of economic news is on tap, including the jobs news on Friday when the market is closed for Good Friday.
Recently the bears have become more vocal about the potential for market struggles as the Fed very slowly sets the stage for interest-rate hikes. There is still plenty of debate over when exactly that will occur, but Fed Chair Janet Yellen did indicate late Friday that it is coming.
The bulls, of course, shrug and say that they've heard this many times before and it simply hasn't mattered. Inflation is not an issue, economic growth is still anemic and with oil down and the dollar strong, the Fed simply can't make any moves.
Although the bulls that have loyally stuck with the market for the past five years have been proven right, it wasn't because they accurately predicted the Fed. It was because they simply stuck with the momentum. More often than not, simply staying with the status quo turns out to be the right decision.
The key to navigating the market isn't correctly predicting macro events like the Fed's interest rate policy. The key is to react when actual change does occur. Recently the market has shown signs of weakness. Wednesday's action was poor, when leading momentum sectors, biotechnology in particularly, corrected. Key technical levels are holding, but it is precarious at best.
The market managed an oversold bounce Friday, which relieved some immediate concerns, and we there's strength again this morning. As I discussed last week, there is the likelihood of window-dressing and markups as the first quarter ends. Fund managers haven't had a particularly good quarter and they will be eager to show slightly better results if they can.
So what do we do? Do we embrace the bearish view that a gradual, more hawkish Fed is going to doom the market? Or do we stick with the bulls, who tell us it is premature to worry about interest rates when the economic situation is still so fragile?
What we do is forego the predictions and stay focused on the price action. The market has issues that require defensive action. The chart setups and conditions don't support aggressive long positions.
While the conditions for a minor bounce look quite good, there is no reason to believe that the recent corrective action is over and that the market is going to embark on another V-shaped move. The market has to prove itself again, and a little bounce on Friday and a gap-up open on Monday as window-dressing kicks in aren't sufficient.
My game plan is to stay very selective and be skeptical that this bounce will turn into another V-shaped move. The important thing is to be opportunistic and to try to pick off a few good trades without becoming overly obsessed with market direction.
The early strength has faded slightly but the market mood is positive, and buyers are trying to forget what happened last week.
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