The rally that started Monday morning never had much energy behind it and the buyers finally decided they had enough this afternoon. The market slowly rolled over and closed at the lows of the day. It wasn't a big rush for the exits, volume was light and breadth wasn't too bad, but we've been dealing with a lack of energy and the effort to hold up the market finally just disappeared.
What is most notable about the market right now is the lack of quality leadership. There is Twitter (TWTR), CyberArk (CYBR) and a few big-caps of interest, also some small-cap biotechnology, China names and a smattering of other things, but nothing really significant takes the lead. Even the might Apple (AAPL) acted poorly and Facebook (FB) faded after a decent start.
It has been such a challenge to find things with sustained momentum it is probably better if we see downside pressure instead. The market never seems to deliver the sort of shake-up needed to create better opportunities. We end up with slow and dreary action that isn't very productive, although it does satisfy many bulls who are happy if the market never downticks.
Once again the market is in that middle zone where it is not making any decent progress but it isn't acting poorly enough to shift into a downtrend. We are stuck in the middle which is just plain uninteresting.
Have a good evening. I'll see you tomorrow.
Apr 07, 2015 | 1:31 PM EDT
It Thinks It Can, It Thinks It Can . . .
- Market keeps chugging along, with some intriguing buys
The market continues to act like the little engine that could. It is chugging along and ignoring the skeptics and doomsayers.
Breadth has been improving with about 3400 gainers to 2250 decliners, but what is most intriguing is that many individual stocks are attracting interest. Twitter (TWTR) is a good case in point. There are takeover rumors again, but it also looks like it is benefiting from the fact that people are looking for a place to park some funds.
We have some bounces in cybersecurity names, chips and biotechnology, which is an indication of speculative trading rather than computer-generated manipulation of indices like we saw yesterday. New highs are still a bit light at around 175, but there is momentum out there.
What is different about the market compared to a number of years ago is that many traders keep struggling to find entry points. The action obviously isn't bad, but the slowness and the occasional appearance of computer buy-and-sell programs don't produce standard technical entries. I hear more traders complain about the dullness of the market than ever before, which is unsettling because the indices really aren't that bad.
The action is slow at midday and that has some bears still hoping for an intraday reversal, but there just isn't any good reason to fight the trend even if it isn't that lively.
April 7, 2015 | 10:57 PM EDT
Bears Remain Cautious
- · The challenge is finding good chart setups.
There are plenty of bears itching to fade this positive reaction to Friday's jobs news, but there is still enough positive momentum to make them wary. The indices began by building on yesterday's gains but unlike yesterday it isn't being driven as much by the index programs. Today there is a bit more stock picking taking place, particularly in the biotechnology group, although signs of flipping are increasing and buyers aren't pushing too hard.
An intraday reversal after the rather lackluster rally on bad jobs news does hold a certain amount of logic but that isn't behavior that occurs often in this market. More often than not we have good underlying support and rather than sell as support levels are tested we have some new buyers step up, which prevents downside momentum from building.
The big challenge continues to be finding good chart setups. We have some leadership in names such as Twitter (TWTR), Facebook (FB), Biogen (BIIB) and some biotechnology, but there are very few themes. Solar energy is acting well, with SolarEdge Technologies (SEDG) and JinkoSolar Holding (JKS), but as far as technology leadership it is mainly the social media stocks that are moving. In particular, TWTR seems to be gaining momentum.
I'm trading a few odds and ends but the big challenge continues to be putting cash to work.
Apr. 07, 2015 | 7:31 AM EDT
The Market Mood Is Tepid
- Despite the good action, there isn't much excitement.
"Repetition of the same thought or physical action develops into a habit which, repeated frequently enough, becomes an automatic reflex."
--Norman Vincent Peale
The market's automatic reflex to bad news occurred again Monday. The fear that the poor jobs report would be a negative for the market was immediately dismissed. Stocks gapped down to start the day as the bears proclaimed that this time it was different and bad news really was bad news. The bulls have heard this before and were having none of it. The logic that poor economic news will prevent the Fed from becoming more hawkish prevailed and stocks traded upward for the rest of the day. Momentum slowed in the afternoon but breadth was good and gains were solid.
In the past action like this has typically produced good follow-through. Once the market bounces in this manner it creates a pool of underinvested bulls that are anxious to buy dips. Of course, the bears are squeezed and they add fuel to the upside, but the real driving force is performance anxiety and fear of being left out should another V-shaped move develop. We saw it back in February when similar worries about a hawkish Fed were overcome.
Will the pattern prevail again with the market trending higher from here or is it different this time? The bears continue to argue that the worst jobs news in 16 months may have produced a knee-jerk bounce by bulls who are used to endless central banker support, but this time we shouldn't be so confident that the Fed will dovish forever. Many feel that the Fed is trapped and will be forced to be hawkish later this year to maintain credibility, but trying to time this market based on the Fed has been impossible.
Although the Fed is still providing a tailwind, the overall market momentum has been tepid. First, we have seen quite a few technical distribution days lately, where the indices have declined on increased volume. The indices are still well below the highs of February and have not been able to string together a series of positive days recently.
The second issue this market has faced was well demonstrated yesterday as the market was pushed more by computer programs and indexing rather than individual stock-picking. The market was unquestionably positive yesterday but it wasn't driven by aggressive speculation in key leadership names. It was driven by programs buying vehicles like SPDR S&P 500 (SPY), SPDR Dow Jones Industrial Average ETF (DIA) and PowerShares QQQ (QQQ). The computers were simply programed to buy the bad economic news and it has nothing at all to do with stock picking.
These negative issues are reflected by a rather tepid market mood. Despite the good action, there isn't much excitement out there. The bulls continue to maintain a complacent attitude but stock pickers and momentum chasers are having a tougher time. There are limited opportunities in individual stocks despite pretty good action in the indices.
Alcoa (AA) kicks off earnings season tomorrow but it is going to be another week before the market has any major reports to which to react. Expectations for earnings are quite low and the mood that develops next week is likely going to produce the next market trend.
For now, the stock picking may be limited but the computers have a positive bias, and that that is what is driving this market. The bears will keep trying to call a top but there is little reason to be overall negative.
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