The good news is that the indices only gave back a portion of Friday's big gains. The bad news is that it was tired and lethargic action that showed few signs of developing momentum. The bulls will tell us the market held up well, but you really have to wonder if we have the ingredients to generate much more upside.
There was some speculative interest out there today, which is reflected in positive breadth in the Nasdaq compared to the NYSE, with almost two losers for each gainer. A few individual names like Netflix (NFLX), Zillow (Z) and Tesla (TSLA) performed well, but there was no sector leadership and few themes of interest.
Probably the most notable action today wasn't in stocks but in bonds. iShares 20+ Year Treasury Bond ETF (TLT) was hit over 2%, and you have to wonder why it didn't impact stocks to a greater degree. Higher interest rates have always been the catalyst that the bears have anticipated, and we are seeing some troubling signs there.
It wasn't a particularly bad day for stocks, but it was very slow and you have to wonder what it is going to take to liven things up. If we don't see some better action soon, selling is likely to pick up out of pure boredom.
This market has some issues, but they aren't bad enough to be a major problem
Have a good evening. I'll see you tomorrow.
May 11, 2015 | 1:19 PM EDT
Volume Is Meaningless These Days
- · True for the market, but not for individual stocks.
The indices are mixed with the Nasdaq and small-caps outperforming. Breadth has improved steadily even though the S&P 500 has been trending downward and hovering at the day's lows. There are a few pockets of speculative action to focus on if you are looking to be optimistic, but we are on track for what may be the lightest volume of the year.
Volume has often proved to be a meaningless indicator in this market as far as the indices but it is still important in the charts of individual stocks. Higher volume reflects the fact there are still traders looking for action so it is a bit worrisome when it dries up and the pockets of action become even narrower. A market that is trying to regain upside momentum really needs accumulation by institutional investors but we aren't seeing much of it.
We are at one of those market junctures where it is easy to support whatever bias you already have. The bulls can point out the fact that we are hovering near highs while the bears can talk about the lack of energy and the fact that there are only 125 new highs.
There are good technical arguments for the position that this rally can't continue much longer but these very lame, low volume bounces have been the foundation for further upside. It may not be a very energetic market but the bears are doing even less than the bulls.
According to Investor's Business Daily the market is still undergoing a correction despite the bounce that has been occurring. The slowness of the action today isn't doing much to change that view.
May 11, 2015 | 10:24 AM EDT
Day Traders Are Bored
- They're creating their own action where they can.
After the big jump last week, the market is off to a mixed start. There are signs of underlying support, but not much energy to the upside. Breadth is even on the NYSE and running 14-to-9 positive on the Nasdaq. Momentum stocks are mixed and there are few standouts. The iShares 20+ Year Treasury Bond ETF (TLT) is being hit hard as interest-rate worries subside, especially after China's rate cut.
The biggest problem is that the bulls are finding it hard to gain much additional traction. Despite the big bounce, volume was light Friday and is very light so far today. Market players aren't particularly bearish or pessimistic but they don't seem very interested in doing much. There is still fear of being left out of further upside, but the urge to chase has cooled a bit. The mood Friday was a bit different than on other similar news spikes, with a higher level of skepticism evident.
The main thing traders are doing right now is focusing on speculative "junk" names such as Viggle (VGGL), InterCloud Systems (ICLD), Synutra International (SYUT) and Idera Pharmaceuticals (IDRA). Day traders are bored and creating their own action when they can.
I'm doing very little, but I continue to like SolarEdge Technologies (SEDG) and Vivint Solar (VSLR) in the solar sector, but it is a struggle to keep cash at work. The market is hitting the highs of the day as I write as traders feel that they have to keep pushing long if they are going to make money.
May 11, 2015 | 6:50 AM EDT
Doubts Begin to Rise
- The market faces much stiffer challenges.
"Doubt is an uncomfortable condition, but certainty is a ridiculous one."
The market celebrated a "Goldilocks" jobs report on Friday. There was enough strength for the optimists to proclaim that a steady economic recovery is developing, while there was enough weakness for the pessimists to be comfortable that the Fed will keep interest rates at low levels to at least September and probably into 2016.
It was a typical, unnatural, market reversal after the market stumbled and looked like it was on the brink of breaking support and starting a downtrend. There had been a number of negative developments recently as a number of earnings reports proved disappointing, interest rates spiked and other worries and concerns bubbled up. A breakdown was in the cards but, of course, hope that the central banks will keep interest rates at zero rescued us again.
As is so often the case, prudent traders that took defensive steps suddenly found themselves underinvested as the market reversed straight up. For years, this sort of action has produced underlying support in the form of bulls that struggle to put idle cash to work. It can be particularly challenging for them, since the technical support for these rallies is usually flawed. For example, the rally on Friday was marred by weak volume. This wasn't the sort of ebullient buying that suggests a sustained rush to put cash to work, although low volume hasn't often impeded these sorts of rallies in recent years.
Even casual market observers are aware of the tendency of the market to produce V-shaped moves. The positive action we had on Thursday and Friday may have looked like a low-volume, oversold bounce, but it has often led to continued moves higher. The bulls may hold their noses and complain about the action, but they fear being left behind and provide enough energy to keep things running to the upside. If you have let weak technicals prevent you from buying, you are still waiting.
The pattern of this market over the last few years has been clear, and it suggests that there is more upside to come following this bounce, but is it different this time? Is the character of the market shifting? Is the fact that the Fed is very slowly becoming more hawkish causing the market to undergo a change in character?
An increasing number of market players do seem to believe that the market is facing much stiffer challenges now. First of all, we have seasonality to deal with. Although the "sell in May" saying has been laughed at in recent years, there are still reasons why it can't be totally disregarded.
There are some bulls trying to spin earnings season as a positive, but there is little question that the overall reaction to reports has been difficult. There have been more big stock blowups than in quite some time, and while earnings overall may squeak out a slight gain, revenues have been declining.
Greece, the dollar, weakness in the Chinese economy and increasing restlessness with the worldwide financial engineering of central banks are raising worries and concerns. While the major indices look OK, technically the action in individual stocks has been choppy and inconsistent. The number of stocks making new highs has been quite contained, which means that momentum traders have had major challenges trying to find strong trends.
There is plenty of skepticism about the market bounce, and early indications are soft, although we have The People's Bank of China cutting rates and providing another dose of financial engineering. Concerns over Greece are bubbling up again and oil is softer after a big run.
The bulls seized the edge on Friday but there are more doubts this time about sustained upward action. Even if the indices do work higher, the challenge will be finding individual stocks in which to put money to work.
There are far more issues of concern than usual. We'll see how the price action looks as the week develops, but it is going to be a challenge to put money to work even if we do hold up.