The early buying on market weakness is routine these days, but what is surprising about this market is the high level of complacency. The Greek issue, which drove markets down overseas, was completely shrugged off before we even opened. The potential for the announcement of an interest rate hike was more likely to produce a laugh rather than any fear or worry.
The Federal Open Market Committee interest rate announcement is due out tomorrow at 2 p.m. Eastern time and will generate another round of speculation over the potential for a hike in October, December or next year. We've had some increased volatility in bonds lately as the time for "liftoff" approaches, but equity players are still unconcerned. They don't even seem to recognize that a hike could occur at some point.
Despite the unconcerned trading today, we do still have the potential for the Greek issue to cause problems. The market doesn't seem to think it is possible, but that means that the potential for a surprise is increasing.
It may not have been an exciting day, but the buying was steady and we closed near the highs once again. The bulls aren't at all worried about Greece or the Fed and they have been right about such things for a very long time.
Have a good evening. I'll see you tomorrow.
Jun 16, 2015 | 1:35 PM EDT
Market Players Shrug at Greek Drama
- If anything, the chaos may play into bulls' hands should the Fed hold off on higher rates.
We had the routine dip-buying this morning before the market even opened, but what is most impressive is that we have a little better upside momentum at midday. We usually see the market go flat intraday, but today we have a little more upside action. Breadth is better and the momentum list is at least two-thirds positive.
What is most interesting about this action is that market players really don't worry about Greece. It is a topic that may impact markets overnight, but once we start trading in the U.S. it is very quickly forgotten. There actually is some real concern in Europe that Greece could exit the European Union. Market players simply shrug. They are so accustomed to governmental entities finding ways to save the market that they no longer even worry about real issues.
This is an interesting setup going into the Federal Open Market Committee interest rate decision tomorrow. The last couple meetings have had positive reactions as the Fed states that there is economic progress but not enough to trigger any immediate interest rate hikes. The chaos over Greece actually may play into the bulls' hands as the Fed may not want to introduce higher rates when the EU has the potential for the loss of its first member.
Overall, it is business as usual for this market. Good support and limited upside momentum. New highs remain quite narrow but breadth is OK. The bulls have the edge, but it takes some effort to extract profits after the automatic dip-buying has played out.
Jun 16, 2015 | 10:32 AM EDT
Keep an Eye on Market Patterns
- When market patterns become obvious, traders move faster to stay ahead.
When patterns in the market become too obvious, they tend to stop working because traders move faster to stay a step ahead; this eventually destroys the pattern.
We had a good example of this phenomenon this morning. Overnight futures were weak and the market was set up for a gap-down open, but traders are so used to this pattern that they didn't even wait for the market to open before they started buying the dip. By the time the market opened the S&P 500 was in positive territory and traders pushed it over yesterday's highs. The dip never even occurred because traders anticipated it to such a great degree.
The issue now is whether other patterns start to change. Typically, the quick dip-buying bounce at the open provides good support and the market holds steady, but what we have to watch for now is a breach of the early lows. The dip buyers have been the biggest positive in this market and as long as they continue to do their thing, it is tough to be overly negative.
Breadth is positive with about 2,700 gainers to 2,300 decliners. I see pockets of momentum again in cybersecurity names Vasco Data Security International (VDSI) and CyberArk Software (CYBR). There are also biotechnology names with speculative interest, such as Aerie Pharmaceuticals (AERI) and Eagle Pharmaceuticals (EGRX).
There are trades to be made but the issue is finding sustained momentum. You may catch a quick pop but it is much tougher finding the names that provide some follow-through. I have a few odds and ends like Second Sight Medical Products (EYES) and FMSA Holdings (FMSA), but my time frames are extremely short and my stops tight.
Jun 16, 2015 | 7:40 AM EDT
We Have a Repeat of Recent Action
- The bears are gaining strength, but markets still trust central banks.
"There's an idea that hell is other people. My idea is that it might be repetition."
-- Stephen King
For months now, the market has been struggling with the same pattern of action. It is saved just when it looks ready to break down, but is unable to gain any positive momentum. There is enough underlying support to keep the market in an uptrend, but not enough buying to produce a breakout.
Yesterday was a classic example of that action. The indices gapped down on headlines about the failure of the negotiations with Greece. We opened poorly and struggled for a few minutes, but the dip buyers stepped up and we trended back up the rest of the day. There wasn't any news development to justify the buying. The dip buyers simply are so used to jumping on when we gap down, that they do it automatically.
Ordinarily, this sort of underlying support would be quite bullish, but the issue is that the buying interest keeps fizzling out. Yesterday the indices had support, but didn't even make it back into positive territory. There was some relative strength in small caps and momentum stocks that were positive for traders, but the momentum has been quite narrow and we can't even manage over 150 new 12-month highs, although the indices are still close to all-time highs.
Sooner or later, this sort of trading range action is going to be resolved and we will have a big breakout or breakdown. There is more negative sentiment now, as the bears grow more confident that higher interest rates, pressure on bonds and a more hawkish Fed will finally produce a change in market behavior. The bulls have been confident that support from the central bankers will continue for quite a while, but there are some worries that this dynamic is finally starting to shift.
We have a repeat of recent action again this morning. The Greek crisis, which is driving everyone crazy, is in the forefront again and we are set to open poorly. Greece is seeking a six-month delay for its payment to the IMF (according to media reports), but negotiations are extremely difficult and there is some genuine concern that they could actually fail.
In addition to Greece, we have the two-day Fed meeting starting today, culminating with the interest rate policy decision tomorrow afternoon. No one is expecting a rate hike, but there will be intense scrutiny of the decision in hopes of determining when "lift-off" might occur. Many pundits believe that September will see the first hike, while others are still convinced that there are enough problems out there to prevent any hikes until 2016.
The key to this market is its ability to consistently find support. You can almost see the dip buyers lining up to go to work this morning as futures are indicating another weak open. The big positive is that there are pockets of speculation for traders. There is money out there looking for a place to go, and that is helping to push some stocks, like CyberArk Software (CYBR), my stock of the week.
One of these days, this pattern of action is going to shift and it will catch many market players by surprise, but the potential for Greece to be saved again and for the Fed to stay dovish is high enough to prevent a high level of pessimism.