The indices finished with small losses for the day, but overall they held up well and the bulls remained quite content.
The pattern of slow action intraday and then a good finish played out again, but lack of energy and momentum continues to be a problem. The slowness, particularly intraday, not only makes things boring but causes some worry that a negative headline about Greece or interest rates could trigger a selling squall. Negative news out of China had no impact, but the bears are betting on something to hit pretty soon.
Maybe the bears will finally be right, but the key to this market is to just not anticipate anything negative. When we do have a poor day like on Tuesday, it is immediately forgotten, and when the bears have another chance, like they did today, they are incapable of doing anything with it.
The market may not be highly exciting, but it is holding up well and there are small pockets of action that are rewarding selective stock pickers. In this sort of environment, you have to stay focused on what the market is offering you rather than worry about trying to predict the future.
Have a good evening. I'll see you tomorrow.
May 28, 2015 | 2:08 PM EDT
Don't Ignore the Market's Tendencies
- · Churning toward the final hour of trading again.
We are seeing a good example of what I mentioned this morning about the market's tendency to go flat intraday, according to The Wall Street Journal. There's little movement for several hours after the traditional dip buying to start the day. The buyers were hesitant this morning but the indices are off the early lows and churning away as we await the action of the final hour.
Breadth has improved and is running about 2,000 gainers to 3,700 decliners. We have a small group of movers but nothing very significant. Palo Alto Networks (PANW) is the main big-cap momentum play, but a few things on my screen -- Second Sight Medical Products (EYES), uniQure (QURE), SolarEdge Technologies (SEDG) and previous stock of the week Globant (GLOB) are doing well.
It is similar action to what we've seen for a while, with decent underlying support and a bullish bias but no real upside momentum. The bears can't take us down but the bulls aren't doing much either.
We'll see if the indexers put capital to work in the final hour and power another positive close. That has been the tendency for a very long time and there doesn't seem to be any reason to bet against it now.
May 28, 2015 | 10:28 AM EDT
Look for a Push in the Final Hour of Trading
- This market does not want to scare folks out.
One thing you can say about the market action lately is that it has been inconsistent. Last Friday was dead, Tuesday we had some strong negativity develop, yesterday it was all forgotten, and today we are worried again. It has been a herky-jerky market, with some pockets of momentum but plenty of landmines as well.
This morning, breadth is poor at around 1300 gainers to 3800 decliners. All major sectors are in the red, with biotechnology stumbling but semiconductors holding up relatively well. The momentum screens are poor, with the exception of Palo Alto Networks (PANW), SolarEdge (SEDG) and a few others.
The problem this market has had recently is that we don't have enough sustained selling to really shake things up and clear the air, but we don't have enough momentum to cause some excitement and energy.
The overall market bias is positive but only mildly so, and it is going to be tough for upside to really develop further until we have some sort of washout. This market simply does not want to scare folks out and stir up some real emotions, which leads to random and boring trading.
I have a few small trades going like Vascular Biogenics (VBLT) and uniQure (QURE) and I'm looking for more to do.
Overall, the best way to find some action is to look for things that are developing for a push into the final hour of trading. It is very short-term, but that is where the best odds are at the moment.
May 28, 2015 | 7:07 AM EDT
How to Trade in This Joyless, Emotionless Market
- Because of automation, emotion has all but disappeared.
"The best is the enemy of the good."
One of the most puzzling, and troubling, things about the market in recent years is how good price action produces no real excitement. By any measure this market has been acting quite well and investors should be celebrating as they rack up some nice profits. While we do hear from some folks about how wonderful it all is, the vast majority of individual traders just don't seem to like the market all that much.
A big part of the problem is that while many traders are making money, they are disappointed with their relative performance. They feel they should be doing better. The one-way market has lifted expectations and it can be extremely difficult to keep pace. It has been especially hard for traders that time the market and look to gain relative performance by navigating volatility.
It has generally been a better strategy to simply stay with the overall trend, but that doesn't produce the outsized results that many traders used to produce in the days before the Great Recession changed this market.
The market may be hitting new highs and traders may be making money, but many feel that they should be doing even better. The nature of the way this market moves may produce upside, but it doesn't lend itself to the sort of trading that many learned before computers and central banks become the dominant forces.
The Wall Street Journal has an interesting article today about how the intraday action in the market has changed. As I've noted many times, there is a tendency for the action to go completely dead in the middle of the day. We will trade in very tight ranges for hours. According to The Wall Street Journal, index funds are much more dominant now and they prefer to trade at the close. In addition, computer models tend to prefer when volume levels are highest, which is right at the open and right at the close. The rest of the day it is just dead.
This phenomenon is just another reason why there is so little celebration of the market action. There isn't much to do for much of the day. We have a flurry of action at the open and close, and that makes it even tough for traders to gain any relative advantage.
Many bulls are annoyed with comments about how joyless and unloved the market has been. All they care about is that indices are rising and hitting new highs. It doesn't much matter how it happens, as long as their accounts are increasing.
While that attitude is certainly understandable, it is troubling to many traders to see how the nature of trading has been corrupted by so many artificial sources.
Complaining does no good. Adaption is the key, and to do that we need to understand what we are dealing with. If most of the action occurs at the open and the close, then that is what we need to trade. If it is driven by indexing and computers, then we need strategies to take that into account.
Overall, this market has a positive bias, which demands that we stay with the long side. Unlike the U.S., there are some very strong emotions in China, where individual traders have been on a rampage. Overnight, China markets plunged 6% on fears of increased margin requirements and draining of liquidity by central banks.
In China the fear is that there is too much emotion driving the market. Many traders would love to see that problem in the U.S.
We have a little early pressure but end-of-the-month action and performance anxiety will help to keep some bids under the action.