Action like we had today is why this market has so many perma-bulls. The feeling is that the central bankers simply won't allow this market to go down.
Even with the Fed trying to sell the idea that there could be a couple quarter-point hikes this year, market players ignored Dr. Yellen and her cohorts because gross domestic products estimates were cut big and the economy is still quite a mess. The Fed may sound a bit more hawkish lately, but it isn't doing anything to act on it.
While it isn't a big surprise that we keep seeing positive reactions to the Fed, it is surprising that the market is totally ignoring the Greece saga. From the headlines it appears that there really is a good chance that Greece may exit the European Union, but the market isn't reacting to that news at all.
Technically, the Nasdaq and iShares Russell 2000 hit new highs on great breadth, so it is awfully tough to argue with the price action. We still have less than 300 new highs, which is remarkable given the position of the indices, but there are enough strong stocks to keep traders busy. We still aren't even close to seeing the sort of positive sentiment we've had in the past, but that has proven to be a good thing.
The last few times we have had spikes like this, we haven't seen much further follow through. However, conditions are a bit different this time as the Fed is clearly not an issue at the moment. Greece can still cause some problems, but the market may actually be relieved if it exits and ends this annoying distraction once and for all.
If the trend is your friend, then this is a very friendly market. You can argue with it and find flaws if you like, but there isn't any money to be paid by fighting the strength.
Have a good evening. I'll see you tomorrow.
June 18, 2015 | 1:33 PM EDT
Putting Cash to Work
- It's the only thing that matters right now.
The indices have been stuck in a trading range for many weeks but they are working hard to break out to the upside today. The S&P 500 and DJIA still aren't there but the Nasdaq and Russell 2000 are in new all-time-high territory. Volume is OK and breadth is staying strong. There isn't any wild celebration but the bulls are definitely feeling good.
Recently we've had problems with momentum fizzling just when the market is on the brink of a strong move, but this move has caught many market players flatfooted and that is helping to produce strong bids. It doesn't hurt that there is more talk about some sort of deal for Greece, but the U.S. market hasn't shown much concern about it. There is denial of the latest deal hitting now but the reaction to Greece headlines continues to be mild.
This action helps produce strong underlying support. There is a big supply of underinvested bulls that think they have a chance to buy lower. When the market takes off to the upside they fear being left behind again and become more willing to pay up.
One key to keep in mind is that markets at their highs don't just suddenly fall apart and go straight down. If you are a hardcore pessimistic you need to be patient and not rush to act on your beliefs. Wait for the price action to indicate that things are shifting rather than constantly trying to predict the exact moment things are topping.
This market is in an uptrend and the fact that many didn't see this strength coming gives it a better chance of continuing. Dip buyers are lined up to buy any bad news about Greece. Putting cash to work is the only thing that matters.
June 18, 2015 | 10:35 AM EDT
Spend Your Energy Finding New Buys
- Forget about the macro environment; it's business as usual.
With the FOMC interest rate decision in the rear view mirror, it is business as usual for the bulls. We have broad strength this morning, with breadth running 3800 gainers to 1400 losers. Biotechnology is on a rampage again, and there is strong action in retail, chips and home builders. Bonds are taking a hit, but that doesn't seem to matter much to stocks these days.
The driving force behind this market for a very long time is fear of being left behind. Underinvested bulls keep thinking that the central bankers can't keep this market running, but when they find out they are wrong, they scramble to put idle cash to work. There may not be a lot of celebration, but market players have learned not to fight it.
The Fed's cut in its GDP forecast is what is driving this action. In simple terms, bad news is good for stocks, and that is why we are running.
CyberArk Software (CYBR), my stock of the week, continues to run and I'm playing a number of other things including Synergy Pharmaceuticals (SGYP), Momo (MOMO), Second Sight Medical Products (EYES), ChemoCentryx (CCXI), Oncothyreon (ONTY), New Oriental Education & Technology Group (EDU) and FMSA Holdings (FMSA).
This market is all about hunting for new buys right now. Spend your energy doing that and forget the macro argument.
June 18, 2015 | 7:12
It's Best to Just Ignore the Bears
- At least, ignore them until they can put some down pressure on prices.
"This cut in the GDP forecast pretty much rules out an interest rate hike in July and makes September unlikely, unless the economy turns around in a big way soon."
--Nicholas Teo, CMC Markets
Wednesday's FOMC interest rate decision can be summed up very simply as "bad news is good news." The bad news is that the Fed cut its estimates of GDP growth to 1.8% to 2% from the prior range of 2.3% to 2.7%. That is a pretty hefty drop, but the good news is that it means that the Fed is still in no rush to start hiking interest rates, despite plenty of chatter about the potential for a couple quarter point hikes before the end of the year. The economy is still very weak and that is good news for the market.
With the FOMC drama over, the pundits can now go back to the very tiresome Greek drama. There is supposed to be an important meeting today and with pessimism over a resolution building, we have the potential for some market moving headlines. U.S. markets have been doing a pretty good job of shrugging off the bad news, but there is still the risk of a negative reaction should the usual rescue not be forthcoming.
Overall, the market has been doing a nice job of navigating through some major issues. The potential for interest rates hikes has been roiling the bond market lately, but now is settling down and the market seems to be pricing in the potential for Greece to not make a deal. We still have a plodding economy, mediocre corporate earnings and plenty of talk about stretched valuations, but these are the same bearish arguments that have been around for years and haven't succeeded in killing this market.
Technically, stocks have been reflecting the muddled state of affairs for some time. They refuse to crack support levels, but have been able to gain sufficient momentum to make new highs. Investor's Business Daily has maintained its outlook of "confirmed market uptrend" for a while, but it readily admits it is not robust action.
The big positive out there is the old cliché about it being a stock pickers market. There are pockets of action keeping bullish traders happy. There isn't enough leadership to drag the broader market to new highs, but we have a couple hundred stocks making new 12-month highs, and that does provide some opportunities.
So after the FOMC drama yesterday, things are pretty much the same as they have been for quite a while. There will be focus on Greece again, but the strong technical support is keeping market players from being very worried.
My game plan is to stick with the path of least resistance, which is to focus on some individual trades rather than trying to predict overall market direction. Until the bears can actually put some pressure on prices, it is best to just ignore them.
We have a slightly positive open indicated, despite some red in overseas markets. Asian stocks didn't like the cut in U.S. GDP forecasts and the weaker dollar, but that is what helps to drive this market.