The market rose for a fifth straight day, but the even the bulls seemed to tire of the endless upside and it closed a bit weak. Market pundits will try to find causative news like weekly unemployment claims to explain the action, but what really drives this market is the same thing that has driven it for years -- lots of cash with no place to go.
Of particular interest today was talk that central bankers are buying more equities because all their money-printing has resulted in bond yields near zero. Many market players figure that with the central bankers pursuing equities with their trillions, this market has no chance of ever trading down again.
My tone may be a bit sarcastic because I can't help but feel that nothing much matters anymore, other than the fact that we have a lot of cheap cash. News, earnings, technicals and fundamentals are trumped by the need to put cash to work. Doing research is really a waste of time as the way to make money is to find where the cash is flowing and join in.
We have earnings reports hitting with Amazon (AMZN) trading up, like it always does, regardless of its numbers. I'm not sure it will matter much if the reports are good or bad. This market has huge underlying support and bad news is probably bullish because it may give the buyers a reason to buy a tick or two lower.
Once again, I remind you to respect the trend. There is no other alternative.
Have a good evening. I'll see you tomorrow.
April 25, 2013 | 1:39 PM EDT
Climbing a Wall of Worry
- A lack of confidence in the market propels it higher.
It is another joyless V-shaped rally as the market levitates. Sentiment remains cautious, if not downright negative. This market never seems to give market players the opportunity to embrace the action. Everyone is struggling to catch up, which helps push it steadily higher.
It would be nice to see real euphoria go hand-in-hand with strength. Rallies used to generate excitement and lots of stock-picking talk. These days, the main topic is how central banks are causing the market levitation as they chase equities with cheap capital.
I keep reminding myself that the best way to approach this market is to stick with the trend and block out everything other than the price action. This market is all about people constantly struggling to put capital to work.
This action really is a good example of "climbing a wall of worry." Few seem to embrace the bull theory. Instead, they are underinvested and distrustful and buy mainly because they feel they have no choice. The lack of confidence in the market constantly propels it higher.
April 25, 2013 | 10:38 AM EDT
The Classic 'V'
- Going straight back up as if nothing has happened.
We are seeing a classic V-shaped bounce again. The attitude of many market players is not to worry about logic, so jump in and buy or be left out. We are now seeing a fifth day of gains after the S&P 500 cracked the 50-day simple moving average for the first time this year on April 18.
What is so surprising is how this occurs so consistently. The market breaks down, momentum players like Investor's Business Daily proclaim the market is undergoing a correction, and then it goes straight back up as if nothing happened.
As I stated in my opening, the action is obviously driven by liquidity. Bearish arguments don't matter when there is cash looking for some place to go. I'd prefer a market where there is more emotion, but we have to play the hand that we're dealt.
I've added a few longs this morning, such as Albany Molecular Research (AMRI), which is breaking out nicely, and Entravision Communications (EVC), which is in the extremely hot broadcast group.
Renewable Energy Group (REGI), which has a seller at $9.50, is in the alternative energy group, which is also heating up, and I'm watching that for a break.
StealthGas (GASS), which has worked well recently, has a secondary priced today and I'm re-establishing a position. What is particularly interesting there is that the CEO bought 5% of the deal.
I'm feeling very underinvested again, but the way to deal with that is to keep on looking for new ideas.
Respect the Power of Endless Liquidity
- Normal human emotions just don't count anymore.
People don't buy for logical reasons. They buy for emotional reasons. --Zig Ziglar
Just when you think it can't possibly happen again, the market delivers another V-shaped bounce. The indices are now working on their fifth-straight days of gains after following the worst breakdown of the year. We have a decent gap and are within a stone's throw of all-time highs.
Technicians generally don't expect V-shaped bounces because after a breakdown there are usually trapped bulls who want to escape and emboldened bears who want to press shorts. They will normally sell into strength, which pressures the bounces and prevents V-shaped moves from continuing.
That just doesn't happen much any more, which is probably a function of a high level of liquidity and computer programs that enhance upside momentum. Once we start to run, the main concern is finding long exposure. No one seems to worry too much about being caught in a fake move. As soon as we bounce, it's fine once again.
It is frustrating action for traders who are used to the normal ebb and flow of emotions, but the best way to deal with it is to simply be cognizant of the action and to not be anticipatory. What will hurt you more than anything is building short positions into these bounces. That may work in a normal market, when bounces fail, but in this market it simply feeds the V. Shorts are squeezed and longs keep trying to inch in with more buys.
It really is no wonder why some many individual investors are bearish or have left the market completely. News flow is mostly irrelevant, fundamentals don't matter much and the action feels manipulated and artificial. The way to profit is to ignore everything and to not doubt the power of endless liquidity.
I point these facts out quite often because the way to deal with this sort of action is to be very aware of it. You have to acknowledge and embrace it and forget the fact that it may not feel logical. It is not always easy to do especially when the economic news is poor and the earnings mixed.
Many pundits make their livings by looking at the big picture and trying to determine causative factors that will push the market one way or the other. Frankly, in this market that sort of analysis is a complete waste of time.
The only thing that matters is price action. If you are trying to fight it, you are on the wrong side of the market. It is simply as that. You have to respect the trend and you can't be anticipatory. Embrace that idea and you should do OK.
I have to admit that this sort of market action frustrates me quite a bit as it was the psychology of the market that I always found to be of great interest. There just doesn't seem to be much human emotion these days and the easiest way to get in trouble is to assume that normal human emotions are going to occur. It just doesn't happen when there is endless liquidity and machines that are designed to put it to work.
We have a gap up start to the day and despite a mixed bag of earnings the mood is quite upbeat.