We started off the short week with some very poor action on Tuesday but, as so often happens these days, we completely reversed the next day and the worries were immediately forgotten. Unfortunately for the bulls, the market has not done a very good job of building on positive action. We have dip buying and strong support, but there is little chasing and we haven't seen much of our old friend, the V-shaped move, lately.
After the good bounce on Wednesday, we traded in very choppy fashion and finished the month of May with some slightly negative action. We continued to hold support and aren't seeing any downside momentum, but the bulls sure aren't very frisky. Although the indices are only a few percentage points off recent highs, we only had about 130 stocks making new 12-month highs while about 95 were making lows. That sounds like a market in the middle of trading range rather than one that is in an uptrend and pushing to new highs.
The bulls continue to tell us that we should just keep on buying and trust that the central bankers have the juice to hold us up for quite a while longer. The bears are growing restless and are growling that a day of reckoning is coming and that interest rate hikes will likely start to hit in September.
Next week, we have jobs news, which will keep chatter about Fed plans in the forefront. Seasonality is also an issue going forward, but there is a big group of people who are convinced this market can't go down, and they have been right for a very long time.
Have a great weekend. I'll see you on Monday.
May 29, 2015 | 10:23 AM EDT
Bad Numbers Pressure Stocks This Time
- · To make progress, stay focused on individual names.
The argument that bad economic news is good for the market because it prevents a more hawkish Fed isn't the case today. The downward revision of the GDP and a poor Chicago PMI number are causing some selling pressure in stocks, although bonds seem to like the news.
Breadth is running about two to three negative. Biotechnology has some bounce on speculation about the upcoming ASCO meeting and we also have chips showing relative strength again. There are a few pockets of movement like Kite Pharma (KITE), Ambarella (AMBA), Second Sight Medical Products(EYES) and SolarEdge Technologies (SEDG) but it is choppy and necessary to stay selective.
The big picture remains quite muddled, so if you want to make progress you have to stay focused on individual stocks. We have consistently seen some low-priced movers lately such as Transgenomic (TBIO) and ChemoCentryx (CCXI), which keeps day traders busy. However, time frames have been very short and there's a lot of rotation so you need to move fast to do well.
Small-caps are lagging but there is still some decent speculative action. Just make sure you are managing trades very tightly. This market is not very forgiving of mistakes.
MAY 29, 2015 | 7:12 AM EDT
A Bearish Attitude Is Still a Handicap
- But nervousness is increasing in the market.
"I don't know where I'm going, but I'm on my way."
-- Carl Sandburg
While the market has had a positive bias since the start of the year, it has been a very challenging market for many market participants. The biggest problem is that we have very mixed action, without a clear trend most of the time. When we do trend upward, it is very slow and lackluster. When we turn down, it only lasts a short period of time and is quickly reversed.
According to Investor's Business Daily, there have been 101 trading days so far this year and for 50 of those days the market uptrend has been under pressure. It clearly is not a strongly trending market and while a bullish bias has been the overall approach, it hasn't generated the sort of returns that come when the trend is strong and sentiment is upbeat.
The indexers and all the folks that participate in the market through allocation in retirement and 401k plans aren't that concerned about this sort of action. The indices are lurking around all-time highs, and that is all that matters to folks that are not actively trading. This market has worked well for the buy-and-hold approach and has washed out many traders that are frustrated with the difficulties they face with traditional trading methods.
While the indices look pretty healthy overall, there has been increasing nervousness over the news flow. We keep struggling with talk about potential interest rate hikes and, of course, the endless speculation over what will happen with Greece is just plain tiresome.
In the last week we have had a major drop in the Shanghai Exchange, which had sunk more than 10% at some point overnight. There hasn't been much reaction to the wild ride in China stocks lately, but it is an issue that can be used as justification for some selling.
We have revised GDP, Chicago PMI and some other economic news coming up, which will be used for more speculation about the timing of potential rate hikes. Many market players simply aren't sure these days whether bad news is good or vice versa. The constant chatter from various Fed members doesn't help much either.
Overall the market continues to demand a positive bias, but that doesn't mean it has been easy to make good progress. While folks are making money, the majority aren't very happy about the level of gains. They are struggling to really embrace this market and are worried about the potential for negative headlines that will final trigger some selling that lasts longer than a day.
It is hard work to stay ahead of this market right now. Vigilance and careful management is needed and a bearish attitude is still a handicap.