The indices ended the day almost dead flat, but we did have a slight flutter of volatility following the FOMC minutes. Initially, we saw some strength on confirmation that no interest rate hike was coming soon, but we gave it all back on news that the Commerce Department made a mess of calculating first-quarter GDP. The number may actually be stronger than thought, which could lead to a more hawkish Fed.
Without that swing on the Fed news, the market would have barely had a pulse today. Breadth was slightly positive and we had about 230 stocks making new 12-month highs, but the pockets of momentum are extremely narrow. There are a few things like Alibaba (BABA), Globant (GLOB) and Ambarella AMBA that the hot-money traders like to see, but it is necessary to be highly selective. We have breakouts, but they are happening in slow motion on light volume.
It is easy to complain about the action if you like, but the most important thing to keep in mind is that we are holding up and there are no obvious signs that a top is forming. The bears are going to point to the fact that transports did very poorly today, but other than the lack of energy, there isn't much wrong with this market.
The indices didn't do a thing today, but the trend is still positive.
Have a good evening. I'll see you tomorrow.
May 20, 2015 | 2:22 PM EDT
Fed Ruffles the Market, but Only Briefly
- · Spike from minutes starts losing momentum quickly.
The minutes of the April FOMC meeting are pushing the indices out of their stupor. The main positive: The consensus view was that a rate hike in June was not supported. There was concern about weak economic growth in the first quarter as well as worries about Greece and the faltering economy in China. The market still loves a dovish central bank and that is what we have.
It has been quite dull action intraday as the bears are toothless, but the bulls are fat and lazy. The overall positive bias remains, but even the spike on the Fed minutes started losing momentum almost immediately. The bulls just aren't producing the sort of chasing that stirs up some stronger emotion.
Breadth is running just slightly negative and we have some leadership in biotechnology and energy, but to keep busy in this market you have to focus on just random small-caps. There aren't any prominent themes or major big-cap leadership. The bulls keep saying there are some good stocks, which is obviously true, but it is narrow and requires some effort to uncover the good ones.
Globant (GLOB), my stock of the week, is finally coming alive and I'll be looking for some closing buys, but there is no way I'm going to be able to put much cash to work.
May 20, 2015 | 11:07 AM EDT
Markets Hold Up, but for How Long?
- · Breadth is running slightly in the red with limited leadership.
Market players seldom worry too much about early weakness as the dip buyers are sure to be lurking. Buying early weakness has worked so well for so long that it is a reflexive reaction when we have red on the screen in the first hour or so of trading. While upside progress may be limited, there is absolutely no ability by the bears to generate downside momentum.
While buying early weakness has been a no brainer lately, the more difficult task has been finding sustained upside. The "buy the dip and quickly flip" trade is keeping day traders in business, but for position traders, it is much tougher to put that capital to work. The indexers aren't seeing a lot of movement, but that doesn't matter since they are all perma-bulls.
Breadth is running slightly in the red, and we have very limited leadership. While being aggressively bullish may not be that easy, it is far harder to have a negative bias. This market is holding up, and we are climbing the wall of worry. The worry is nothing more than fear of not being in a market that never goes down.
I continue to trade some names like Momo (MOMO), Plasmatech Biopharmaceuticals (PTBI), Qunar Cayman Islands (QUNR), Solaredge Technologies (SEDG) and Globant (GLOB). I added to a position in ChinaCache International (CCIH) and am waiting for that to take out some overhead resistance.
MAY 20, 2015 | 7:58 AM EDT
The Joyless Rally Keeps Returning
- Many market players are outright contemptuous of the action
Someone who thinks the world is always cheating him is right. He is missing that wonderful feeling of trust in someone or something.
-- Eric Hoffer
On the surface, the market action looks quite healthy lately, but if you dig down there is a high level of inconsistency that is a creating confusion and uncertainty for many market players. The indices are hitting new all-time highs and the price action is quite positive but, at the same time, the action is extremely dull and slow.
There is strong underlying support but limited upside momentum. The bulls are willing to buy this market, but really don't want to commit to it. That gives the market a positive trend but prevents the sort of aggressive buying that creates real excitement and energy.
One of the biggest changes in the market since the bottom in 2009 is the phenomenon known as the joyless rally. There isn't any overt negativity, but there just isn't much excitement, even though the market acts quite well. This has been an ongoing characteristic of this market for quite a while. Back in the pre-Great Recession days, there would be dancing in the streets as indices cruised to new highs and market players loaded up on breakouts.
There are some bulls out there proclaiming how wonderful things are, but many market players are indifferent and even outright contemptuous of the action. Many folks really don't want to buy this market, but they feel they are forced to because you simply can't fight the trend. The end result is that they hold their noses and buy.
The irony is that the tepid emotional reaction helps to create conditions that provide strong support and keep the uptrend moving along. This environment creates pressure to keep buying in order to keep pace. The fear of being left behind drives the buying, rather than the greed of racking up some big gains. That is why the mood is so suppressed even though the action is generally good.
From a trading standpoint there are two choices: either you embrace it the best you can, or you try to fight by anticipating when it might shift. Fighting it has been a very tough way to make money, and even if you embrace the action, it can still be a struggle mentally to fully commit to it.
My approach is to try not to let the inconsistence of new highs but limited excitement impact me. I want to stay focused on individual stock picking and not try to anticipate a market shift. It is much easier said than done, as it is almost impossible to not contemplate the possibility of a sudden upset due to interest rates or some dire economic development.
We have FOMC minutes today to put the focus on the timing of rate hikes, but there is plenty of money looking for a place to go, so watch for support. We have a flat open shaping up.