A slight bounce in the final hour of trading saved us from a full-blown downtrend day, but it wasn't very pretty. There was only feeble bounce attempts most of the day and breadth was solidly negative with just 1,400 gainers to 4,450 decliners. The momentum screens were very poor but small-caps managed slight relative outperformance.
The poor action today shouldn't come as a huge surprise. The recent breakout and uptrend has been tepid as best. Of course there are always a few individual stocks that do well, but it has been a very narrow group and many of them fell quite quickly today.
Typically, after action like this, the bears have been incapable of building any downward momentum. In fact, cautious traders often feel foolish for making defensive moves, even though there may be good technical reasons to do so. Defense has been a lost art in a market driven by central banks, but the risk that one of these pullbacks will finally develop into something direr demands caution.
Overall, the indices are still holding but the lack of any real energy coupled with steady selling today does raise the level of concern. The bulls have consistently found their footing after days like this, but this market has been acting differently for a while and we can't take for granted that the selling pressure will end quickly.
Have a good evening. I'll see you tomorrow.
May 26, 2015 | 1:35 PM EDT
Markets Slump as Bears Drive Momentum
- The real test of this market will be to see how anxiously buyers pursue a bounce.
While the recent market action hasn't had a lot of upside oomph, we have held up remarkably well and have seen consistent support. There has been a change in character today, and the bears are actually generating a little downside momentum. We are hitting the lows of the day this afternoon, and the dip buying has been quite limited so far.
This market has given us some warning signs recently, but there has been enough positive action for the "glass is half full" perma-bulls to shrug off any worries about limited momentum and narrow leadership. The smart move has been not to be overly bearish as even when there is some struggle, we have come back quite quickly and without much warning. Betting on downside momentum simply hasn't worked even when the action is dreary and weak like it is today.
The real test of this market will be to see how anxiously buyers pursue a bounce. This market has not had much chasing lately which is why the upside has been so slow. There has been a very high level of complaints about the boring action and that needs to shift to really put the market in gear.
This is poor technical action today, but the indices are still holding some key support levels. The iShares Russell 2000 ETF (IWM) is definitely the laggard lately, which is a problem. But the other indices are still over the 50-day Moving Average and will likely see some sort of bounce soon. It may not be trustable, but market players are very well conditioned to buy weakness, especially when it looks as ugly as it does at the moment.
MAY 26, 2015 | 10:20 AM EDT
It's a Day-Traders' Market
- Stay out of trouble until better opportunities develop.
Weak opens, especially to start a new week, have resulted in reflexive buying. This morning is playing out differently as a very feeble early try was turned back and new intraday lows immediately resulted. Breadth is very poor as it approaches 4-to-1 negative. All major sectors are red, momentum stocks are doing nothing and small-caps are leading to the downside.
What is worse is that the follow-through has been wiped out after the breakout move May 14. That new uptrend never was able to gain much energy, despite the many positive proclamations. There have been some stocks of interest but it has been narrow and inconsistent.
It may be healthier if the market would actually suffer a good hit instead of being saved just when it looks bleak. The resulting rallies are never very powerful, mainly because we never see a washout that shakes things up and creates stronger emotions.
I took a few stops and have little inventory on hand. It is mainly a day-traders' market -- Second Sight Medical Products (EYES) and PlasmaTech Biopharmaceuticals (PTBI) are seeing action as traders time frames of just a few hours find something to do.
The key is to stay out of trouble. Better opportunities will develop, but we are in a rather dull and uninteresting cycle.
May 26, 2015 | 7:18 AM EDT
Don't Be Fooled by a Weak Market Start
- Time and again weak starts have found dip buyers.
"The greatest weariness comes from work not done."
-- Eric Hoffer
The indices broke out to new all-time highs over a week ago, but further upside has not come easily. The market just isn't doing the work needed to produce a real uptrend. The S&P 500 managed to move up 0.2% last week, and the Nasdaq tacked on 0.8% as volume fizzled in front of the Memorial Day weekend. It is technically an uptrend, but it has been a hard, slow slog.
The good news is that momentum stocks have been outperforming and there are pockets of action for the aggressive trader that stays selective. On the other hand, small caps have been underperforming and breadth has not been particularly strong.
The bulls shrug and tell us that it is an uptrend and it is futile to fight this market. Yes, it is slow and volume is light, but haven't most of our rallies developed in the same way over the last few years? Maybe they haven't been quite this slow, but doubting the market because of the lack of energy or excitement has not worked at all.
In addition to the slowness, the bears have plenty of potential fundamental ammunition to work with, but are incapable of taking advantage. Bonds bounced back last week, but the chatter about rate hikes will continue to be a focus. Janet Yellen left things wide open after her comments last week, but the market has yet to see sufficient positive economic news to cause real worry.
We continue to have issues with Greece and now Spain that give traders something to worry about and currency movement has been greater lately as well. Earnings season is over and while the consensus opinion is that it was quite lackluster, we have merger and acquisition news like the Times Warner Cable (TWC) and Charter (CHRT) deal that keeps optimism running high.
Overall it is a challenging market. It certainly has some positive aspects, but it has been so slow and the uptrend so lacking in energy that it is tough to be excited about the action. However, the underlying support has been stubborn, some pockets of action quite good and the bears have proven toothless.
I often write that we shouldn't avoid being anticipatory and focus on the price action. With that approach there is little choice but to stay bullish, but there aren't that many places to put cash right now, with the upside coming so slowly and momentum fairly narrow.
We are looking at a weak start to our four-day week, but the market has consistently found dip-buying support early and kept the bears from pressing any early advantage.
A close under 2121 of the S&P500 would likely cause some technical concern, but the bulls are extremely stubborn and it is going to require some real effort for the bears to roll us over.