While the market didn't make much additional upside progress today, it did do a nice job of holding on to Monday's gains. Breadth was slightly better than even and we had Nasdaq and momentum names outperforming. Weakness in oil and financials hurt a little, but there wasn't any major weakness.
The most notable thing about the action today was that it was totally unremarkable. There wasn't anything particularly negative or positive. It was simply trading range action with some pockets of decent momentum and some weakness in sectors like oil. We had about 200 new highs and 40 new lows, which is a function of the indices still hovering close to highs.
In this sort of environment, the temptation is to start making predictions rather than just waiting to see how things develop. This market could easily break in either direction, but it just doesn't pay to guess before we actually see a catalyst and some movement. There is some pressure, but we are still in a general uptrend.
Earnings are rolling in and Amgen (AMGN) produced another nice beat once again. Chipotle Mexican Grill (CMG) is down on its report, but it is one that has a tendency to come back. Tomorrow evening we have Facebook (FB), which will be one of the more interesting reports.
I'd like to make some profound statements about this market, but there really is nothing very profound about it right now. We are in a trading range and the action is fairly dull. There isn't any reason to be wildly bullish or bearish.
Have a good evening. I'll see you tomorrow.
April 21, 2015 | 1:56 PM EDT
Avoid Having a Strong Market Bias
- · Stay with this market until there is a good reason not to.
It has been mixed action but that is exactly what we need after yesterday's big bounce. We've grown used to markets that only go straight up, so a flat day can actually feel negative. In theory, this is healthy action that allows short-termers to take gains and stronger buyers to add positions.
In a market like this, the views of the bulls and bears tend to be self-reinforcing. That is always the case to some degree, but when it is choppy like it is today, it is easier for the bears to focus on the negatives and the bulls to see only the positives. It is never possible to be purely objective when you have money on the line.
Lately the number of bearish calls is rising as big-picture pundits see the convergence of a more hawkish Fed and negative seasonality as catalysts for this market to finally turn down. The underlying daily action has been mixed enough to give the bears a bit more credibility, but there still is no major change in the character of the market.
I believe the best thing a trader can do now is not have a strong bias one way or the other. There are a few flaws in the market action but nothing bad enough to cause major concern. The best way to make money is to keep looking for new trades and to manage those you are in already. If -- and when -- the nature of the action shifts, we should shift as well.
The opportunity cost of trying to anticipate a market turn is greater than the risk of being caught in a market reversal -- that is what it boils down to. It is better to stay with this market until there is a good reason not to.
April 21, 2015 | 10:51 AM EDT
Pockets of Aggressive Action
- China and cybersecurity names are seeing interest.
We have some selling pressure into the early strength but there are some pockets of aggressive speculative action as well. China junk names such as China Gerui Advanced Materials Group (CHOP), China Nepstar Chain Drugstore (NPD) and Gulf Resources (GURE) are still running by some of the big-cap names like Qunar Cayman Islands (QUNR), 58.com(WUBA) and Noah Holdings (NOAH), which are doing well too. There is some interest in cybersecurity names such as CyberArk (CYBR), Tableau Software (DATA) and VASCO Data Security International (VDSI). Large-cap technology stocks are mixed, with Apple (AAPL) seeing pressure but Facebook (FB) active again as optimism grows in front of its report.
Overall, the good news is that the trading is more robust and there are some pockets of action. We have been trending straight down but that is being offset by the action in individual names. While breadth is slowly contracting, it is still positive with 2,800 gainers to 2,400 losers.
I've been peeling off some odds and ends and haven't made any notable buys so far. I am taking a look at AAPL for a trade in front of its earnings report next week. Expectations are high but technically the stock is in a solid base and trying to work through some resistance. I believe it could deliver at least one good upside push in anticipation of strong numbers.
There is some profit-taking pressure this morning but it is mild and no technical damage is being done so far. The bears will need to push much harder than this to jeopardize the recent rally.
Apr. 21, 2015 | 7:11 AM EDT
An Exercise in Financial Engineering
- How much longer can this endless central banker support continue?
"It may be normal, darling; but I'd rather be natural."
--Truman Capote, Breakfast at Tiffany's
One great certainty about the stock market is that patterns of behavior don't work forever. The things that work best stop working and traders find new ways to profit from the market. One of these days central bankers will no longer save this market so quickly or easily but in the current market is showing no signs of less euphoric response to central banks. This time it was the Bank of China that delivered the goods and it worked just like it has worked for nearly six years with the Fed, European Central Bank and other bankers around the world.
While the buyers aren't reacting like they always do and are buying the news there is some weariness over the endless central bank manipulation. No serious market player will disagree with the notion that the market is mainly an exercise in financial engineering these days. There is some talk about fundamentals, valuations and economic news, but all of that is secondary to central bank action that creates $200 billion in new buying power in the blink of an eye.
Virtually everyone who looks at the market wonders how much longer this endless central banker support can continue. It is natural to question that something that undermines the normal functioning of the market but trying to predict when conditions are going to change is simply useless. No one is going to predict the exact moment that the character of the market undergoes a dramatic shift. Those who have been bearish for a long time will declare victory, but they will have paid a hefty price for the lack of precision in timing the top.
The most important thing to know about this market is that that there is no significant change in its character. After a single poor day we are bailed out by central bankers like so many other times and now underinvested bulls are scrambling to put money back to work. The fear of being left out and performance anxiety create strong underlying support and the trend upward continues.
The bears point out recent negatives and are intently focused on the fact that the Fed is slowly moving to raise interest rates at some point, but they ignore the elephant in the room -- the ECB and Bank of China are picking up the slack when it comes to producing fresh supplies of new capital that will keep interest rates at zero for a while longer.
We have issues with Greece again, as there are worries that maybe earnings might not be so great due in part to currency concerns, there is plenty of talk about a bubble in China equities and people like Mark Mobius sound bearish, but that negativity just isn't reflected in the price action. The buyers are still there and they are still don't see any reason to be fearful.
Earnings are rolling in now and we have a positive response to another mediocre IBM (IBM) report, which tells us that expectations have been low. China markets were up 2% to 4% overnight and the Obama administration is pushing for a solution to the problems between Greece and the European Union. We have upside follow through and everything is back to the way it has been for a very long time.
We are going to continue to hear plenty of arguments about why this market is doomed, but until those arguments are reflected in the price action, there simply isn't good reason to be a pessimist.