Last week, there was some complaining about the slow market action, but the positive bias helped to offset much of the frustration. It was very slow again today, but this time we didn't have the positive tone to provide some solace. The indices didn't suffer major losses and breadth wasn't that poor, but if you were looking for some excitement, you'd probably be better off working in the garden.
Last week, it felt like the market was in "wait and see" mode and felt even more that way today. The good news is that we have the start of some earnings reports tomorrow with JPMorgan Chase (JPM), Wells Fargo (WFC) and Johnson & Johnson (JNJ) in the morning and Intel (INTC) and Linear Technology (LLTC) after the close.
The problem with this market is that while the bulls have had an edge and have benefited from strong overseas markets, there is still worry about potential interest rate hikes. In addition, the strong dollar is seen as a potential headwind. The bulls are still pushing, but they aren't able to generate enough momentum to suck in more buyers.
We can try to make some grandiose predictions about how this slow action is going to resolve itself, but the best play is just to bide our time and wait for things to develop. Let's hope we'll have some clues tomorrow as the market reacts to key earnings plays. Intel's earnings have often marked key turning points in the market and will be of particular interest.
Have a good evening. I'll see you tomorrow.
April 13, 2015 | 12:47 PM EDT
Disinterest Is the Hardest Thing to Trade
· And there is way too much of it right now.
The Nasdaq and the iShares Russell 2000 (IWM) are exhibiting some relative strength, but the S&P 500 is back to flat and breadth is slipping. Once again, it is not bad action, but the biggest challenge is that it is just downright boring. Some market players chalk it up to traders sitting on the sidelines as we await earnings season. Maybe that is so, but it is a challenge to reconcile the slowness of the action with the positive tone.
I have to admit I'm concerned that this action is a symptom of some issues that may be more of a problem as we enter the slower summer season. The adage about selling in May hasn't been a problem in recent years, but if we have this level of interest next month, it is going to be a difficult market.
There is still enough positive momentum to offset the negatives. The market offers the best opportunities when there are high levels of fear and greed. Disinterest is the hardest thing to trade and there is way too much of it right now. The opposite of love isn't hate. It is indifference, and that is what we have to worry about if this action continues for much longer.
There are still things working, but I'm sure hoping earnings season helps to create a bit more drama.
April 13, 2015 | 10:38 AM EDT
Playing Odds and Ends
- · Stay with the long side until the price action changes.
The market action has picked up where it left off last week. The indices are up and chugging along, but there is little excitement or energy. Breadth is running 2,950 gainers to 2,250 decliners with biotechnology and solar energy leading again. Market players are buying but they aren't overly enthusiastic about it.
Facebook (FB) is leading on the momentum screen and there continues to be speculative interest in "junk" China stocks. The China market is seeing quite a few comparison to Nasdaq's 2000 tech bubble, which is fodder for the bears who haven't yet made a bubble call that has mattered.
General Electric (GE) is disappointing momentum players who were looking for follow-through after Friday, but they are still focusing on biotechnology names that have been a momentum favorite for a while. If, or when, we lose that group, it will be time to worry about market momentum.
I'm looking to add to FB and am playing a few odds and ends, including Teekay Tankers (TNK) and Merrimack Pharmaceuticals (MACK).
The market is producing another classic, low-volume, V-shaped move that is hard to trust, but there really is no choice but to stay with the long side until there is a notable change in price action.
Apr 13, 2015 | 7:28 AM EDT
The Big Question This Earnings Season
- The big issue this week is how the mood will develop
"The most successful men in the end are those whose success is the result of steady accretion. It is the man who carefully advances step by step, with his mind becoming wider and wider -- and progressively better able to grasp any theme or situation."
--Alexander Graham Bell
The market action last week proved once again that when there is high level of doubt and uncertainty, the fallback of market players is to keep on buying. It was very slow action, and the market has been showing some signs of nervousness over the potential of the Fed to raise interest rates as soon as August, but the buyers just keep on coming.
By the time we had wrapped things up on Friday, we had ended up with another V-shaped move in the indices. This one was even sneakier, because the volume was so dull and lethargic. There was very little excitement, but as we all know, that simply doesn't matter much in this market.
Earnings season kicks off this week, and the big question is whether this uptrend will continue. We are facing some resistance as we head into the February and March highs, but if you have paid attention to this market the last few years, those sorts of resistance levels haven't mattered much. Low-volume, V-shaped moves seem to cut through overhead like a hot knife through butter.
The big issue this week is how the mood will develop as earnings hit. There has been quite a bit of talk about how it is going to be a rough quarter for many companies, especially those that have had to deal with the stronger dollar. The good news is that expectations seem to be quite low, so the possibility of some "good news" surprises may be fairly good.
Quite often, a theme will develop as earning's season develops. "Buy the bad news" or "sell the good news" are typical reactions, and they tend to repeat once they come into a play a few times. Currencies are going to be a big issue, and we'll see how the market reacts as that issue is presented by management.
While the positive market action last week wasn't anything too surprising, one new development is that there are more and more bears predicating that a market top is near. Some of this is probably due to seasonality, but the bears have long believed that a more hawkish Fed would be the catalyst that finally rolls this market. While there is still plenty of uncertainty about the Fed's timing, there is no doubt that higher rates are eventually coming. The bears are growing more confident that this issue is going to have more impact soon, and that is making them much more shrill in their calls that a top is developing.
The bears also have some ammunition in the form of poor technical accumulation, light volume and the mixed mood, but the underlying support and dip-buying interest is what keeps tripping up the pessimists. Market players still fear being left out of further upside, more than they worry about being caught in a downtrend.
Although market action has been good, stock picking has been challenging lately -- but earnings season should help in that regard. At least we'll have a bit more excitement. Stay focused on the price action, and don't be too quick to embrace the bearish thesis until there is some tangible evidence of selling on your screens.