The slow-motion market rally picked up some steam today, but market players continue to be unexcited by the one-way action. They are buying because that is what is working best, but they don't seem very happy about it. The market is chugging along and isn't listening to any negative arguments.
The business media have to come up with a headline for this market, which should be interesting to see. It is generally pretty easy to find one simple reason to explain what is moving the market. Concepts like momentum and performance anxiety are too vague for good headlines, so they won't generally be cited. Editors need some sort of news event, and they have quite a few today to choose from, although none seem to be quite right. We have oil hitting new highs for the year, poor economic news in both the U.S. and China, more drama over Greece and a central bank of Europe that is having a hard time finding new things to buy.
Any of those events make for potential headline explanations, but none of them really clearly explains what is behind the market move. I suspect the media will favor something to do with oil as an explanation, but the real driving force is a combination of many things that simply leave buyers with nothing else to do but embrace the action.
Market professionals will always be able to provide some good reasons why they are buying, but the bottom line is that many are buying simply because everyone else is. At the end of the day, that is as good a reason as any and really is the best explanation of what is going on in the market.
Have a good evening. I'll see you tomorrow.
April 15, 2015 | 1:56 PM EDT
Best Market Action We've Seen Lately
- · Fear of being left behind is more obvious.
We have some "if they aren't going to pull back, we might as well just buy them" action as the day progresses. It is still slow, but stocks are walking up and it's grinding down the shorts, even if their bearish bets are small.
Biotechnology names are attracting momentum strength again, but what is really helping the action is strength in oil and chips. We have very broad strength, although the pockets of momentum remain quite sedate.
Over the last couple of weeks, the bears have been making a bit more noise as the market has dithered on lower volume and not been able to generate a high level of energy. However, it has been the nature of this market to slowly grind higher and not produce any easy pullbacks to buy. If you don't jump in, it's a challenge to find entry points. The computer programs seem very aware of that tendency and do a nice job of exploiting.
The market has been walking up for over a week now, but the action today is probably the best we've seen during that period. Performance anxiety has been building and now the fear of being left behind is becoming more obvious.
There are still bears out there who don't seem to understand that this market doesn't move in the same way it did a decade ago. The action is very lopsided and you just can't make progress looking for the ebb and flow in the action that we used to have when human emotions impacted price action. In this market, anticipating something negative is the worst thing you can do.
April 15, 2015 | 10:37 AM EDT
Plugging Away Again
- ·It isn't quite as sleepy today as it has been the past week.
The positive reaction to the Intel (INTC) earnings news along with a positive reaction to the European Central Bank news conference is giving the market a positive tone again. Breadth is solid with 3,575 gainers to 1,650 decliners and we have strength in biotechnology, chips and oil driving the action.
Yesterday, the momentum screens were mixed but they are looking better today. What tends to drive this market more than anything isn't bullish conviction due to positive factors but fear that the market won't even let you buy on pullbacks, which don't last longer than a few minutes. It doesn't matter what the technical condition of the market is, either. Low-volume moves into resistance are just a quaint notion by folks who think the market should have ups and downs.
Anyway, we are plugging along again and it isn't quite a sleepy today as it has been the past week. Maybe that is a symptom of earnings reports and central bankers babbling, but it does make things a bit more interesting.
I've added to a position in Tower Semiconductor (TSEM) on strength in the chips sector, and I'm looking for an addition to a small Facebook (FB) position. So far, there isn't much holding near highs of the day, but we'll see what has relative strength as things develop.
Apr 15, 2015 | 8:29 AM EDT
Central Bankers Continue to Lift Markets
- Shift in earnings expectations will provide a boost as well.
"Why should a financial engineer be paid four times to a hundred times more than a real engineer? A real engineer build bridges, a financial engineer build, build dreams. And when those dream turn out to be nightmares, other people pay for it."
-- Andrew Sheng
One of the biggest challenges of this stock market over the past five years or so has been its disconnection from the way the economy is actually performing. We have a particularly good example of this lack of logic coming from China today.
Overnight, China announced that its first-quarter GDP rose 7% over last year, which is the slowest pace since 2009. In addition, retail sales and industrial production reports were weaker than expected. This slowing has been building for some time and you might think that it would have a negative influence on stocks. However, not only has it been irrelevant to China stocks but they have doubled in value since July of last year. In fact, the Chinese stock market has been so hot it has prompted comparison to the Nasdaq bubble back in 1999-2000 as small-caps, on average, trade with a trailing price-to earnings ratio of 90.
The reason for this disconnection between the stock market and the economy is no mystery. It is the caused by the same thing that has driven stocks around the world for five years now -- financial engineering by central bankers. Economic planners in China have been very aware of the economic slowing that was occurring and their response was to keep interest rates low and provide huge amounts of liquidity. Most of that money has few other places to go but into stocks and that momentum has fed on itself.
None of this is new or very surprising if you have been watching the market. The market is still being driven by central bankers. Nothing else matters much. The bears are still trying to predict when this phenomenon will come to an end and have failed miserably with their timing.
Lately, the U.S. market has been trading rather slowly, albeit with a positive bias, and that has caused some market-timing bears to predict that a major top is near. After being so wrong for so long it is hard to take those predications very seriously, but with earnings season upon us there is at least some potential catalysts that could trip things up.
So far we have a few reports from big banks and the Intel (INTC) earnings last night. Intel's numbers weren't anything surprising but expectations were low and there is a positive reaction. That is a good sign for earnings season as just a few weeks ago there was talk about how reports were likely to be dismal. Reports may still be poor, but the shift in expectations is helpful to the market.
While the market action has been generally good, many market players, including me, are growing frustrated with the slowness of the trading. We continue to walk up on air and don't have any corrective action to shake out the excess. This has been pretty common over the last few years but its occurring now in an environment where there are questions about how much longer the endless support by central bankers will continue. The answer is much longer than anyone thought and it still is causing some loss of momentum for the overall market.
We have a positive open on the way as Intel is helping the tone and central bankers in Europe and China continue to boost the market. A lot more drama would be nice but most bulls are happy and content with this one-way action.