The theme this week was positive but slow action. The indices chugged along nicely but there wasn't much excitement. That isn't anything new, as the market has been powered by unfeeling computers and central bankers, but it does make it less interesting.
Many bears make the mistake of thinking the lack of euphoria is an indication that the market players are conflicted and ready to start selling at the first sign of trouble. While there is fear in this market, it's fear of being left out as the slow-motion rally continues and easy entry points never develop.
Next week, we kick off earnings season, which at least gives us some interesting catalysts to work with. Many of the bears are convinced that it is going to be a lousy quarter and the run-up this week is going to create conditions for selling the news. In addition, there are concerns that the recent spike in the dollar is going to cause some currency problems for big multinationals, and that will have be used as an excuse for some poor reports.
On Tuesday, Intel (INTC) kicks off the earnings parade and should help set the theme. We still have plenty of folks looking for a top, but this market refuses to worry. The bears tried to use the Fed and potential rate hikes this week as ammunition, but it still hasn't worked.
Although it is slow, stocks like GE (GE) are keeping the momentum going. As long as there is movement like that, there is little choice but to stay with this market.
Have a great weekend. I'll see you on Monday.
April 10, 2015 | 10:21 AM EDT
Positive Bias Lacks Bullish Conviction
- · Buyers buying because they have to.
We've picked up where we left off last night: generally positive action and good breath but not much emotion or energy. While there is an obvious positive bias, it is a product of worry about being underinvested or left behind rather than bullish conviction. They will buy this market not because they want to but because they have to.
The General Electric (GE) news is helping the tone, although it is too low priced to have much impact on the Dow Jones Industrial Average. The DJIA is calculated using a ridiculous price-weighting formula, which makes the stock price far more important than actual movement.
We have leadership from gold and some bounce in bonds, which isn't great leadership but biotechnology is still attracting attention. The momentum list has a few standouts such as LinkedIn (LNKD) and Chipotle (CMG), but the mighty Apple (AAPL) is trading poorly and that has more impact on the indices than anything else.
I'm tired of complaining about the slowness of the trading and it doesn't seem to be helping much anyway. There is still very little of interest. One stock I did add this morning was biotechnology name Merrimack Pharmaceuticals (MACK), which is trying to move out of a good-looking consolidation.
Apr. 10, 2015 | 8:34 AM EDT
Inconsistent Action Creates Dilemma
- The market is holding up fine, but there's no momentum.
"As long as you're moving, it's easier to steer."
While a late day push helped to put the indices into positive territory on Thursday, it was another slow day of action, with the market stuck in a trading range. We simply aren't moving much, which makes it very hard to navigate.
Breadth was close to dead even and volume was slightly higher but still at unimpressive levels. Although the bulls aren't able to generate any strong momentum, they are still doing a good job of holding off the jabbering bears who keep telling us that a major top is going to occur at any time. There is no real fear or worry but there is no euphoria or joy either.
What is most challenging about the market is its internal inconsistency. The action is slow and unexciting, yet there continues to be strong support and we don't sell off. There are a few pockets of strength here and there but they are very sparse and not much is running. According to Investor's Business Daily, on average, only one of seven stocks that have broken out is up more than 10%. Even if you do find a breakout they just aren't going anywhere.
Many bulls, not to mention the bears, believe what the market really needs is a good correction. However, the nature of the market these days is to stay strong enough to ever prevent any fear or worry from developing. Good markets tend to have an ebb and flow as emotions shift about but this market refuses to develop in that manner. We don't ever purge the excess or shake up sentiment for long.
As I mentioned in my closing comments last night, there are analysts stating that there is a "stunning" lack of interest from retail investors. That really is the core issue. We never get the sort of excessive optimism that produces overbought or extended markets. Instead, we have indexing and computers pushing in just one direction. With interest rates at zero they have endless funds to invest in and we never reach the point where contrarian thinking kicks in and we top out due to excessive optimism.
My traders are struggling with how to deal with these market conditions. We have the persistent bears that keep telling us that the end is near but they have been wrong for years and there still are no signs that they are right. There is no reason to be overly negative when the market is seeing this much underlying support.
The dilemma is that the market is holding up very well but there simply isn't much momentum. That is fine for intraday traders that are scalping for pennies and for computer programs that push the indices around for some quick gains, but for the average trader it just results in very random movement that isn't tradable.
There are some trend followers who are always excited when they can find a stock or two that is making new highs on increased volume. We do have nearly 200 stocks hitting highs, which isn't that many, but it does produce a few things of interest. The problem, as noted by IBD, is that there is very little follow-through.
The market is holding up, which is a good reason to not be bearish. However, it isn't producing much movement, which makes it hard to be aggressively bullish. The way to deal with it is to embrace the behavior and to keep looking for the few opportunities that are developing. It is tough to find them and make substantial progress but that is the nature of this market.
Earnings next week should help liven things up and European markets are hitting new highs, which helps to keep the mood positive. If we actually had some human emotions it would probably be a pretty good trading market.