"Don't fight the central bankers" turns out to be good advice, once again. Some market players felt that the European Central Bank's interest rate decision may have already been priced in since the indices were already hitting new highs, but after a very brief amount of selling at the open, it was steady buying the rest of the day.
It didn't hurt that Fed member Narayana Kocherlakota made some comments about how interest rates would stay low for years or that CNBC played out some bullish comments from hedge-fund manager David Tepper. The net result was that underinvested bulls were caught again looking for things to buy while the bears (if there are any left) provided a little fuel for a short squeeze.
Again, there was little emotion and volume was tepid, but that seems to be the norm these days. If you are looking for excitement about the market hitting new highs, you simply aren't going to find much. Plenty of folks want to buy, but mainly due to fear of being underinvested in a market that never seems to stop rather than for bullish conviction over the great economy. If things really were so great, why does the ECB have to cut interest rates?
Probably the best news today was that the small-cap indices outperformed. A healthy market needs small-cap speculation and we had a good dose of it today. Sentiment is still quite mixed with plenty of bulls who seem to have quite a bit of idle cash. For a market making highs, there sure seems to be a lot of cash still looking for a place to go.
Although volume is light and we don't have much energy, the trend is up and there is no reason to fight it.
Have a good evening. I'll see you tomorrow.
June 05, 2014 | 1:12 PM EDT
Don't Waste Time Calling a Top
- There's a mad scramble to find more long exposure.
The dip-buyers had no patience with the "sell the news" reaction this morning. They jumped in on the pullback, the machines kicked in and then CNBC fanned the bullish flames with news that David Tepper was no longer bearish. The combination sent the bears to the sidelines and the V-shaped action took hold.
What is most impressive about the action is that breadth is now nearly 4-to-1 positive and small-caps are having their best day of relative performance in a while. Momentum stocks are almost all green now and all major sectors are positive.
This looks a lot like the V-shaped action of 2013 that crushed the bears and the top-callers, who tended to think that any news event would cause a "sell the news" top. Instead, there is a mad scramble to find long exposure before the market runs away even more.
I've add Facebook (FB) on buy stops, but I'm in the camp of needing more long exposure. Nothing has been more challenging in this market than putting capital to work, especially if you are selective about charts and looking for volume to confirm momentum. It has been better to just throw money at things and not think too hard about whether or not they are set up well technically.
We'll see how we finish the day, but when we have this sort of action, it creates very strong underlying support. The supply of dip-buyers increased substantially today, which is why you shouldn't waste your time trying to call a market top.
June 05, 2014 | 10:39 AM EDT
Trading Remains Challenging
- The mood doesn't reflect the market's behavior.
The initial reaction to the ECB news was positive, but now some "sell the news" action is kicking in. There was nothing surprising in the announcement, and given how the indices have run up into the event, it is a good setup for profit-taking.
Breadth is negative with about 2,225 gainers to 2,850 decliners, and precious metals are leading to the upside. Big-cap momentum names are losing traction and the biotechnology group, which led yesterday, is lagging today.
Despite the media focus on "all-time highs," it has not been an easy trading environment. The mood certainly doesn't reflect a market that is acting in an exceptional manner and sentiment is a confusing mess.
There are a few pockets of trading opportunities, but they are sparse and don't last long. There is little choice but to be a flipper if you want to make money. A few small-caps like Sypris Solutions (SYPR), Dehaier Medical Systems (DHRM), Knightsbridge Tankers (VLCCF), Vertex Energy (VTNR), China Finance Online (JRJC) and RadNet (RDNT) are acting OK, but you really have to dig deep to put money to work.
Overall, the indices are still acting well but the trading is very challenging.
June 05, 2014 | 7:34 AM EDT
Finally Some Catalysts
- If nothing else, the ECB decision and payrolls could bring volatility.
The economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending -- namely, recession, rising unemployment, and financial stress. --Ben Bernanke
After a week of slow, but mostly positive, action, the market is looking for a catalyst and we have two big events that could provide it.
First is the ECB interest-rate decision this morning and second is the monthly jobs news tomorrow.
The ECB decision is of particular interest as ECB President Mario Draghi is expected to announce that deposit interest rates will be moved below zero. Depositors will actually be forced to pay a price for the privilege of putting money into a savings account. But the move is seen necessary to battle the possibility of deflation.
The move is well anticipated and the market reaction is likely to be mostly based on comments about how aggressive the ECB will be with additional forms of quantitative easing. Moving interest rates below zero is viewed as only one step in the battle against a greatly-feared deflationary spiral.
Market expectations are extremely complex and I'm not going to try to guess the reaction, but typically there has been celebration of most any move by central banks. Even if there is an initial negative reaction, it doesn't last too long as market players have learned that you just can't fight the folks with that much monetary power.
We'll see how it plays out when the news hits, but I suspect the buyers will be ready to jump in on a negative reaction. But if nothing else, a little higher level of volatility will be a nice change. While this market has been acting well, it has been slow and boring action and has not offered a great amount of opportunity.
The initial ECB decision is at 7:45 a.m. ET and the press conference is at 8:30 a.m. The press conference is probably more important than the rate decision, so don't be too quick to act.
After the ECB is out of the way, the focus will quickly turn to the May jobs report, which is due out at 8:30 a.m. tomorrow. This number will fan the flames of discussion over whether the poor first-quarter GDP number was just a weather-related aberration or signs that the economy is started to slow once again.
Let's see what happens on the ECB and then we'll go from there.