The good news is that the indices inched up on positive breadth. The bad news is that it was slow and boring again. For many bulls, the fact that we are up is good enough, but the buyers are not acting very decisively. A big reason for the hesitance is the EBC decision tomorrow morning, which is likely to receive a strong reaction. Some say the news is already discounted, but others feel that friendly central bank action will propel the market even higher. The market definitely is not acting as if it expects anything very negative.
Although it has been rather dull trading, the market isn't doing anything wrong. Breadth has been lagging and many small-caps are being ignored, but the trend is upward. The bears are complaining about the high level of complacency and the low level of volatility, but it is just a talking point that doesn't matter right now.
The news tomorrow from the ECB and then the monthly jobs news on Friday should shake them up, but we could really use better volume. Although the market is holding up well, trading is not that easy as there isn't much conviction. The bulls sound very confident, but it isn't being reflected in the level of buying.
Have a good evening. I'll see you tomorrow.
June 04, 2014 | 1:27 PM EDT
An Odd Mix of Bullishness and Skepticism
- This market mood is unlike any that I can recall.
Prior to the Great Recession, it was easy to use sentiment as a contrary indicator. When market players were highly bullish, it meant they were heavily invested and there wasn't much buying power left to drive the market higher. You couldn't time the market with any great precision, but the concept tended to work.
Over the last five years, the logic of sentiment as a contrary indicator has broken down. Most notably, it is no longer true that when there is a high level of bullishness there is a lack of buying power. Buying power never seems to be an issue these days. In fact, the biggest problem for many bulls is that they are chronically underinvested. They simply can't put money to work very easily, even though they are very positive about the market.
This is probably one of the biggest problems for hedge funds in recent years. They have chronically underperformed, not because they are too negative but because they don't seem to have the sort of entries that they would prefer. Many fund managers just can't chase V-shaped moves, even when they are bullish.
The point is that sentiment polls aren't very helpful; in fact, they can be downright misleading if you try to apply standard contrarian logic. This market mood is different than any time I can recall in the years I've been trading. There is an odd mix of bullishness and skepticism. Market players constantly worry that the market will run away without them, but, at the same time, they aren't very optimistic about the economy or the potential for the market. They buy because they feel they have no choice, not because of strong bullish convictions.
The action today is a good example. It continues to move higher slowly, but other than the usual cheerleaders on television, there isn't any wild bullishness. Market players are making buys, but they don't seem very happy about it.
June 04, 2014 | 11:10 AM EDT
- The group leads the action in the early going.
Like Tuesday, the dip buyers jumped on the early weakness but it is still mixed action under the surface. We have a shift with the Nasdaq and small-caps performing better than the NYSE today. NYSE breadth is running about 18 to 10 negative while the Nasdaq is only 10 to 12 negative.
Traders are showing interest in low-priced biotechnology names and that group is leading the action in the early going. Vanda Pharmaceuticals (VNDA), Neuralstem (CUR), Alder Biopharmaceuticals (ALDR) and Advaxis (ADXS) are a few popping up. Chips continue to act well with names like Applied Materials (AMAT) and Kulicke and Soffa (KLIC) moving nicely. Momentum stocks are mixed with Apple (AAPL) leading but Tesla (TSLA), Google (GOOG) and Facebook (FB) not doing much.
It is probably a mistake to draw any major conclusions from the action. There isn't much going on as we await the ECB decision, and traders are stirring up a few pockets of action. Short-termers are most likely to exit quickly if things stall, but, for now, they are just trying to shake quick gains out of the market.
June 04, 2014 | 8:21 AM EDT
The Makings of a Dull Day
- A complacent market waits for news flow.
The only rule is don't be boring and dress cute wherever you go. --Paris Hilton
The market has been at a near standstill for several days as we await the European Central Bank's interest rate decision Thursday. It is widely anticipated that rates will be cut and move into negative territory on deposit accounts. Low inflation readings have made the market even more confident that the ECB will make an aggressive move.
The big question is whether the market has already priced in this decision. If you have been paying attention over the last five years, the answer to that question is probably "no." The market has consistently reacted in a positive manner to central bank actions, no matter how well anticipated they have been. You simply don't fight the Fed or its equivalents.
Unfortunately, we have to wait another 24 hours before the ECB decision so that means that we are likely to have another day of slow and random action. The indices have been holding up just fine but if you are looking for action, it has been very tough. The market just isn't doing much of interest in either direction, which makes it very difficult to be aggressive.
Speaking of lack of aggressiveness the Fed's favorite mouthpiece, Jon Hilsenrath of The Wall Street Journal, had an article Tuesday stating that the Fed is worried about the high level of market complacency. The worry, as stated by Kansan City Fed President Esther George, is that "keeping rates very low into late 2016 will continue to incentivize financial markets and investors to reach for yield in an economy operating at full capacity, posing risks to achieving sustainable growth over the longer run."
According to Seeking Alpha, the latest poll shows bullish sentiment climbing to 62.2%, which certainly tends to confirm the view that complacency is quite higher. Contrarians will point to that as a bearish indicator, but anyone trying to time the market based on sentiment polls might as well just play a slot machine. There has been no correlation between market attitude and movement for a long time, and if anything, the level of underinvested bulls remains quite high.
So, we have a complacent market waiting for news flow, which should make a dull day. Traders will be shaking the bushes looking for action and that may help to create a little, but sustained momentum has been hard to find recently.
I'm not particularly bullish or bearish. I'm just looking for opportunities while we wait for stronger-trending action in the overall market. Today isn't going to be the day that produces great clarity.