Although there was plenty of red on the screens today, it was an interesting conclusion to a busy week as volatility picked up and some strong pockets of momentum, particularly in China-related stocks, emerged. Breadth was poor, particularly on the NYSE, and every DJIA stock finished in the red. However, traders weren't too worried and were busy chasing a number of speculative names that have become extremely extended, such as Ambarella (AMBA), Zoe's Kitchen (ZOES) and NeoPhotonics (NPTN).
Things looked rather gloomy to start the week and we looked near to a collapse on Tuesday morning, but as happened so frequently, the buyers stepped up just in the nick of time and then we blasted higher on Wednesday on some vague chatter about Greece. We build on that a little on Thursday and stumbled a bit today, but overall the bulls won the week and have us back in the middle of the long-running trading range.
As I've been discussing, the market's big problem recently has been its inability to generate enough momentum to break to new highs. We have had some impressive spikes, but we are not seeing the V-shaped action to the degree we did previously.
The bulls will continue to tell us "there's some stuff acting well," which is true, and that is helping keep speculation healthy. The market is very narrow and we only had about 130 stocks making new 12-month highs, which is anemic, but the bears are inept and incapable. They have squandered the edge when they had it and can't find a way to defeat the chronic dip buyers.
The bears will continue to warn us that disaster lies around the corner, but there still is no hard evidence in the form of price action to support their arguments.
Have a great weekend and do something fun. I'll see you on Monday.
June 12, 2015 | 11:06 AM EDT
A Retest of the Lows Could Be a Problem
- · A weak close today would raise some real concerns.
The soft open brought in some standard dip buying, but it fizzled out and now the S&P 500 is trying to hold the intraday lows. Breadth is running not quite two to one negative, but we have pockets of speculative action in China names and some momentum stocks like Mobileye (MBLY), JD.com (JD), Amicus Therapeutics (FOLD) and CyberArk Software (CYBR).
It is a bit volatile, but emotions are very strong and the action has the feel of a slow summer Friday. The bears keep warning us about this sort of complacency, but it hasn't mattered and likely won't, unless the indices start taking out some support levels.
The S&P 500 is looking particularly weak as I write, but this market keeps shrugging off technical pressure. We are breaching the 50-day simple moving average, which is a problem, and a weak close today is going to raise some real concerns about a failed bounce.
As I've been discussing the last couple days, the biggest issue for the market has been its inability to sustain upside momentum. We will bounce and have some spikes, but then we fizzle out and have action like we are seeing now. Luckily for the bulls, we keep finding support, but another retest of the lows would be a problem.
I've made a number of partial sales this morning but overall the action in individual stocks on my screens isn't too bad. I'll continue to look for longs and will maintain a positive bias, but this isn't very attractive right now.
June 12, 2015 | 7:00 AM EDT
It's a Cliché, But This Is Indeed a Stock Picker's Market
- You should focus on the individual stocks that are working.
"Success is what happens when a mind with a positive attitude meets an effective plan of action."
--Edmond Mbiaka
The most impressive thing about the market on Thursday was that it barely budged, despite news that IMF negotiators were at an impasse with Greece. Greece received most of the credit for the bounce on Wednesday but was ignored yesterday, which tells us that there is more behind this market move than just the extremely tiresome Greek drama.
What has been the main driving force behind this market for a very long time is continued confidence that central bankers would remain market-friendly, combined with chronic performance anxiety by underinvested bulls. The big challenge for market players hasn't been calling market direction, but keeping pace with the gains in the indices. Rallies are seldom celebrated, because they produce underperformance even when fund managers are making money.
Despite the good move on Wednesday and the steady action yesterday, there are still concerns about this market's ability to generate sustained momentum. Overall, we haven't made much upside progress this year and the trading range has been the tightest in over 20 years. Whenever it looks like we are ready to run up in V-shaped fashion, we fizzle out, but the very strong underlying support and dip buying prevent any downside from building.
To complicate matters, we also have had narrow leadership. The number of new highs has been surprisingly low and less than half of stocks in the market are trading over their 200-day simple moving average of price. There are things working, which lead to the old cliché about it being a "stock picker's market," but sometimes the old clichés sum things up fairly well.
Not only is the market dealing with the Greece issue quite well, but it is also shrugging off bond worries. The iShares 20+ Year Treasury Bond (TLT) has been breaking down and the market simply hasn't cared very much. It bounced strongly yesterday, which helped sentiment but, overall, the market seems to not be overly concerned that the bond market is obviously pricing in some interest rate hikes by the Fed down the road. By the time the Fed acts, the bond market will have fully discounted the move and equities just aren't reacting much.
Unsurprisingly, the bears continue to believe that a day of reckoning is coming soon. The combination of Greece and more hawkish central banks are easy arguments to make, but we should all know by now that the key to navigating this market is to focus on the price action rather than big- picture arguments.
It is very easy to make macro arguments about impending doom, but until there are some solid signs of problems in the market it is futile to dwell on it.
Overall, the market is in pretty good technical shape, although sustained upside momentum is still a potential problem. It is narrow, but there are individual stocks working and that is what we need to focus on. We'll hear the usual top predictions but the long side bias is the way to go.
In the early going we have some slight pressure due to Greece, but it is likely to be a slow summer Friday. Watch for the dip buyers.
