The market has been enjoying a slow melt-up since breaking out last week, but it paused this afternoon. The indices were close to flat, breadth slipped and the recent lack of energy is prominent. They continue to hold up remarkably well but it is a slog without many pockets of speculative action to keep traders entertained.
Some late buying by computer programs prevented the indices from closing at their lows, which is routine now. We've only have had a handful of closes at the lows this year. It is just another example of the very stubborn underlying support that prevents the bears from gaining any traction.
A flat day is exactly what we want to see to consolidate recent gains. The bears will attempt to spin it as unhealthy stalling but it really is too minor to call a negative.
The big challenge is staying with the trend, although it is slow and the mood is sour. It helped create conditions to work higher, but it doesn't make it easy to feel good about the market.
Have a good evening. I'll see you tomorrow.
May 19, 2015 | 1:27 PM EDT
Fear Is Still a Factor in the Market
- There are no real worries, but some people just can't relax
The indices are essentially flat and breadth is running slightly negative, but overall the market is holding up well and there don't seem to be any real worries. The biggest fear in this market continues to be underperformance due to underinvestment. There isn't any real concern about being caught in a sudden reversal, which is logical since markets that are hitting new highs don't just suddenly fall apart.
Over the years, there has probably been more money lost due to fear of being caught in a one-day crash than has actually been lost in such a crash. The opportunity cost of doubting the market is extremely high, especially when the market has continued to trend upward for years.
One of the big reasons we keep hearing about how hated the rallies have been is because so many folks have never let go of the fears since the bottom in 2009. Many market players believe there would be a retest of some sort, and when that didn't occur they continued to believe a major correction would occur as a result of the lousy economic recovery.
A lot of folks have been on the wrong side or distrustful of this market for a lot of years, and that is why the new highs aren't celebrated like they were in the "old" days. The action today smacks of resignation to the fact that it just doesn't pay to fight this market.
It's flat out there intraday once again and there is limited energy, but that has been suggestive of more upside rather than a tiring market. It may not be easy, but looking for reasons to like this market is the way to go.
May 19, 2015 | 10:55 AM EDT
Dip Buyers Are Hesitating This Morning
- · Feel free to go for it if you can find entry points that you like.
There are dip buyers out there this morning, but they're hesitating a bit more than yesterday. The tendency recently has been for the market to grow stronger during the day as folks with idle cash start thinking: "If the bears can't take prices down, then we'd better do some buying."
Still, sentiment continues to be very odd. Some chasers and momentum players are doing a nice job of sticking with strength, but many other folks are feeling an inability to find good entry points. This mixed attitude is largely a function of trust. Too many traders have been anticipating problems, so they're struggling to adapt to a market that doesn't seem worried at all.
I often write about how it's important to be reactive rather than anticipatory. That's easy in theory, but it can be quite difficult in reality to defer to the market's price movements. There seem to be more players these days who respect the fact of an uptrend, but are still feeling quite cautious. They just don't have the trust that's needed to really stick with the prevailing trend.
I've been trading names like Qunar Cayman Islands (QUNR), Builders FirstSource (BLDR) and PlasmaTech Biopharmaceuticals (PTBI) this morning. I'm digging for more, but I'm definitely in the camp of traders who don't see many entry points that we like. Either the market needs to shift or I do -- and I'm not sure which it will be at this point.
Why the Trend Really Is Your Friend
- Stocks can't rally forever, but you can't time the coming reversal.
"On such a full sea we are now afloat. And we must take the current when it serves, or lose our venture." -- William Shakespeare
It's simplistic and trite, but the old saying "the trend is your friend" is the single best piece of advice right now for dealing with this market. Despite the saying's obvious effectiveness, many market players still have a difficult time fully embracing it. There's always this lingering doubt that the market simply can't continue to perform in this manner forever.
While it's certainly true that a day of reckoning is beckoning, it's futile to try to time it. The best course of action is to simply let all of the bearish arguments wash over you and stay with the trend as stubbornly as possible.
Unfortunately, that isn't nearly as easy as it sounds. Just over a week ago, the market looked like it was on the brink of a major change in tone. Bonds were under pressure, small-cap stocks were breaking support and earnings season was being proclaimed as a failure. The obvious course of action was to take some defensive steps, which many did -- just in time for the market to reverse back upward for no obvious reason.
Ultimately, it's the central banks that deserve the credit for saving the market yet again. The bankers didn't take any overt action, but the quiet reassurance that they aren't going away any time too soon was all that it took to placate stocks. Stick with the trend and don't fight the Federal Reserve -- that's all you need to know for now.
Although the market is trending higher and the indices are making new highs, what's been most notable recently is how many market players are struggling with the current state of affairs. Frankly, this is the most-hated bull market ever.
You'd never think there would be so much disgust and despair from bulls who are making money in a market that's hitting its highest point in history. This negativity primarily stems from the fact that many players simply can't keep pace with the market action. They may be making money, but they struggle with underperformance and find it extremely difficult to gain an edge.
For many players, the dilemma is that the way the market moves doesn't provide them with opportunities to deploy capital the way they'd like to. They have no problem embracing the trend and staying bullish; their challenge is putting cash to work in stocks that are extended on light volume.
As I've often discussed, volume has become almost meaningless in recent years, especially with regard to the indices. However, it's still an indicator that adds weight to a stock's movement. A stock going up on declining volume doesn't provide the same level of confidence as one that goes up on increasing volume. But if you rely on that convention, you're left with few opportunities to put cash to work.
While the most obvious course of action is to stick with the market uptrend, that doesn't mean that it's easy to navigate the action and put cash to work. It's very tough to do -- and that's a big part of why this market is so hated even as it appears to be acting so well. People don't want to just throw money at new highs and hope that prices go higher. There are folks who do that and do it well, but many more just can't overcome the logic that prevents them from dismissing their worries and concerns.
As for today, we have a positive U.S. open on the way as hopes of a Greece deal continue to grow and European central bankers promise faster and more sizable support. The bottom line: Not only are central bankers our friend, but so is the trend.
