Many things about the market have changed since the market bottom in 2009, but one of the hardest to adjust to is the lack of emotion when the indices have big days. Granted that volume isn't great and many markets around the world are closed for Easter Monday, but the steady buying after the gap-down open should produce more than a yawn.
The immediate buying of the gap-down open was so painfully obvious you have to wonder why the market even gapped down in the first place. The bears were trying to sell the idea that this time poor economic news wasn't a good thing for the market, but that idea was immediately out the window the moment the market opened.
Obviously much of the trading today was a function of computers and index buying. The easiest thing to do is to jump on some index ETFs and that is what many did. The buying of the indices pushed up a whole basket of stocks, which is why breadth was solid but very few individual stocks stood out. Traders didn't have many pockets of momentum to choose from, although they did bounce a few things. Even the mighty biotechnology sector didn't do much today as there wasn't much speculative energy.
You might think that a rather lackluster spike like this would invite folks to sell or "fade" the move, but that isn't how it has typically gone. Market action like this more often than not produces more of the same.
While the indices looked pretty good it was a dismal day for stock picking. The play was to simply buy the index ETFs and stay with them. The indexers have been doing just that, with good success, for years so it shouldn't be a big surprise.
The bears will argue that the market is going to quickly see the error of its ways and give back this move, but that is based on hope rather than any regular pattern of behavior. This market may lack excitement and energy but it isn't going to roll over easily.
Have a good evening. I'll see you tomorrow.
April 06, 2015 | 1:50 PM EDT
Computer Dip Buying
- Indexes are driving the market
Quite often when the dip buyers show up early on Monday morning it turns into a trend day. That is what we are seeing now as we slowly and steadily work higher. Bounces just don't fail very often when they develop in this manner. Instead of being fearful that the poor jobs news might kill the market, the fear now is that the market will keep on running and not let us in.
This action is even more challenging today because it is largely computer driven. It is the indexes that are driving the market rather than individual stocks. When that happens, we don't have the typical pockets of momentum to keep traders busy. Instead we have many stocks trading up on average volume, but very few that really stick out. That is also reflected in the fact that breadth is very strong and is running about 3 to 1 positive on the New York Stock Exchange.
Also, there is a bit of hangover after the three-day weekend. Not only are many schools closed for spring break, but many folks are sneaking out to attend some early-season baseball games. The nicer weather is also helping to deplete the ranks of traders.
So while we have some strong trending action intraday, we are once again hampered by a lack of energy and emotion. There is lots of green, and we are hitting new intraday highs on the S&P 500, but the humans don't seem to care very much. The market pundits are pleased with this resilience, but traders just look bored once again.
APR 06, 2015 | 10:07 AM EDT
The Bad-News Bounce
- If you're surprised by it, you haven't been paying attention
If you are surprised by how quickly the market has bounced back from the weak jobs report and gap-down open, you haven't been paying very close attention to this market for a number of years. Bad news like this generates almost reflexive buying and that is particularly true on weak Monday opens. Market players have been conditioned to shrug off all concerns. Bad news is never very bad when you have the Fed playing backup.
Breadth is now solidly positive with more than 3,000 gainers to about 2,100 decliners. Gold and oil are leading with biotechnology and solar energy attracting attention, while financials and chips are seeing slight weakness. The momentum list is running positive but there aren't many standout movers other than Tesla (TSLA) and uniQure (QURE).
The key thing to keep in mind is that action like this tends to create underinvested bulls. The folks who were defensive never had much of a chance to jump in and they grow fearful that the market will continue to bounce without them. They end up providing support and we see one-way action like this morning's. It doesn't hurt that the bears are suffering from another squeeze.
I don't have much going on. My stock of the week, Lion Biotechnologies (LBIO), is off to a good start and I'll be looking to put more cash to work as things develop. This is exactly the sort of market action that has frustrated many fund managers for a very long time, and what typically happens is that the market just keeps chugging along, and that doesn't make new entries easy.
As long as it stays above the early lows, the bulls are going to cause frustration for the overly anticipatory bears, as well as for underinvested market players.
April 06, 2015 | 6:49 AM EDT
Gearing Up for Some Drama
- Lower intraday lows would signal a key change in sentiment.
"There will never be a good time to raise rates off zero when you've been there for six years."
-- Peter Boockvar
It has been a rather boring action lately but market pundits are gearing up for some drama, following a particularly weak jobs report. When the market was closed on Friday, the BLS announced that only 126,000 jobs were created in March and the jobs numbers for January and February were revised quite a bit lower. It was even worse based on the household survey. The numbers were so bad that there is no way to spin them in a positive way, other than to claim that they are a short-term aberration of some kind.
This news is lighting up the pundits this morning. Many are claiming that this very poor report will finally help to end the long running uptrend. They have been trying to predict the market top for so long, it is not surprising that they are excited about this news. But is this just another futile attempt to time the market that will be overcome by the persistent bulls?
While it is quite stunning that this economic recovery is still so amazingly poor, that hasn't bothered the market much. It may be the worst recovery since the Great Depression, but it hasn't mattered since the Fed, and central bankers around the world, keep interest rates at zero and produce truckloads of cheap capital. The bulls are content that this poor news keeps the Feds from becoming more hawkish, and that in turn will keep the market running.
The bears are arguing that this time it is different, and bad economic news is not a market positive. The view of many bears is that there comes a point when a poor economy matters and low interest rates will no longer be much of a positive. This time we even have some signs of wage inflation, which could be a major concern for the Fed if it persists.
The bears claim that the Fed is in a trap, and in order to maintain credibility it will have to stay on course to raise rates at some point this year. The bad jobs numbers may push back the timing a bit, but the belief is that quantitative easing is unwinding and rates will go up, unless there is even more economic disaster down the road.
The early market reaction to this news is negative, but the big question is whether it is going to be the catalyst that pushes the market into a downtrend. Technically, the market has been struggling lately. We have had a lack of energy and it has been downright boring trading lately. It hasn't been that bad, but there hasn't been much upside opportunity. We are now set to open near the March lows, and some recent support levels will come into play.
A weak open on Monday morning following poor economic news is almost an engraved invitation for dip buyers. Sometimes they are a bit slow to jump in, but the very consistent pattern has been to buy bad news like this. If that doesn't happen and we see some lower lows intraday, it will be a key change in market sentiment.
The bears seem almost too excited about the potential for a market breakdown today. They do have some weak technicals supporting their position, but this market has come back from this sort of action far too often to be overly negative. That doesn't excuse us from playing some defense, but the jobs news may not be the disaster that many bears are hoping for.
The most important thing you can do right now is to stay open minded and be flexible and let the market digest that surprise news. There will be many market "experts" crowing about how they knew that disaster was coming and they will be proclaiming that this is now a major market top. It is possible that they are correct, but we shouldn't be too quick to accept that argument. We need the market to guide us and to give us hard evidence as to how things are developing. Selling into a gap down open on Monday morning has not typically been a good idea.
In addition to the jobs news, we have a number of other issues at work. Oil is up as the Saudis raised prices to Asia, the Iran nuclear deal is causing some moment, Greece says it is capable of paying bills this week and the dollar, bonds and gold are jumping around on the jobs news.
While the gap down open is causing some consternation, the good news is that the lethargy that has marked the action will shift. We have first-quarter earnings coming up as well, which, combined with this morning's drama, should create some opportunity for traders.