The catalysts for today's ugly action were obvious. The Greece mess and, to a lesser degree, the popping of the equity bubble in China gave the sellers plenty of good reasons to dump stocks. The bulls tried to tell us the Greece news was already priced into the market, but that didn't turn out to be the case at all. Greek PM Alexis Tsipras obviously underestimated the will of the eurozone officials and so did this market.
The big question now is whether we are sufficiently washed out to set us up for a bounce. The price action today was not impressive in that regard. We had steady and consistent selling all day. We didn't have the big whoosh down and bounce that market players look for as signs of capitulation. Instead we just had steady liquidation as concerns grow over the ultimate fallout of this debacle.
Market players have grown very used to markets that come right back from various negatives, which makes it even worse when we don't have a quick bounce. There is a big supply of trapped bulls who simply can't imagine that the market won't come right back. The longer this selling persists, the more anxious they will be to escape.
I haven't written it in a while, but it is a good time to note that "bad markets don't scare you out, they wear you out." It is the slow, steady drip lower that causes more pain than the sudden one-day collapse. Selling out of disgust and dismay is much more of a problem than sudden selling caused by headline news.
The worst part of the action today was the complete inability to bounce after some minor dip buying at the open. We went out at the lows and virtually nothing was unscathed. NYSE breadth was 10-to-1 negative and even gold was only a minor safe haven.
There were comments that the selling lacked "intensity," but that may be more of a negative than a positive because there are still plenty of potential sellers if we don't see some better action very quickly.
It is obvious that some "good" stocks are being unfairly punished with the overall market meltdown, but at this point it is the macro that is driving things and you are fighting the trend if you start trying to bottom fish too early. There are going to be some great opportunities down the road, but patience is the order of the day right now.
Have a good evening. I'll see you tomorrow.
June 29, 2015 | 12:45 PM EDT
Market Hates Uncertainty, Such as Today's
- ·News from Greece and elsewhere isn't good; let's wait this out.
Over the last five years, the market has consistently come back from dips and pullbacks because there was always confidence that the central banks would be there to throw more cheap money at any problem. Greece changes that dynamic. The central banks can't solve this problem easily and that is creating uncertainty. It doesn't help that we also have Puerto Rico stating it can't pay its debt or that the China bubble appears to be popping.
There is an old saying that the market hates uncertainty, and unfortunately that is what we have right now. News is out that Greece will not make the debt payment due tomorrow and there isn't any short-term solution to the problem on the table. It looks like it is going to be another week before we'll have some idea whether Greece can be saved again.
Stocks are dipping lower and making new intraday highs as I write. iShares 20+ Year Treasury Bond ETF (TLT) is making new intraday highs as investors look for safety in bonds. Gold is leading to the upside while almost everything else is in the red.
My game plan now is to simply wait this out. There are plenty of stocks that are going to be interesting as they test support levels, but they need to show they can hold. We are still in the liquidation phase of this pullback and there isn't any reason to start building up positions. Even the dip buyers who jumped in this morning are hesitating now as there isn't enough buying demand to turn this market back up.
Many bears are convinced this is the start of the major correction that they have been predicting for many years. That certainly is possible, and the bears deserve some respect at the moment. On the other hand, many stocks that are being punished today are fundamentally sound and will do fine unless we have a major contraction in multiples.
Don't be too sanguine about this action. The potential for more downside is high, but the ability of this market to find support has been consistently surprising and I wouldn't rule it out.
June 29, 2015 | 10:34 AM EDT
Some Good Opportunities Are Developing
- · It's a rocky day but I'm waiting for entry points.
In view of all the talk about the Greek catastrophe, the market action isn't all that bad in the early going. We gap down and have some mild dip buying support, but so far there are no signs of panic. Market players have grown used to quick bounces and recoveries, and they are not easily discouraged, even when the news media are acting like the end of the world is upon us.
Breadth is a closing in on four to one negative, and new lows are expanding sharply to close to 300, but while the selling is widespread there are plenty of market players waiting patiently for some entry points. There isn't any rush to dump positions, but as we take out the early lows and start seeing some trending to the downside, it is going to trigger some stops.
This market gave some warnings on Friday. As I discussed, the underlying action was downright ugly, with many of the leading momentum names doing very poorly. That should have triggered some defensiveness, but at this point it is not too late to sharpen up your stops and be ready to raise more cash if we don't see a better recovery.
I'm taking some hits, but am doing very little so far. Most of the positions I'm watching are off the early lows and are exhibiting good signs of support. I added to my Stock of the Week, Synergy Pharmaceuticals (SGYP), and have my eye on a few other things like Second Sight Medical Products (EYES), SolarEdge Technologies (SEDG) and bluebird bio (BLUE), but right now I'm just tracking them and patiently waiting for entry points that I like.
It is going to be a rocky day, but some good opportunities are developing.
June 29 | 07:09
We Can Get a Healthy Market out of Chaos
- Generally, it has been a mistake to rush and sell into this sort of open.
It's a cruel and random world, but the chaos is all so beautiful. -- Hiromu Arakawa
Despite all the headlines, market players have been generally unconcerned about Greece. The indices have held up well and predictions of disaster have been mostly ignored. To the surprise of many, no deal was made with Greece on Saturday, which has resulted in the imposition of capital controls to prevent widespread panic and a flight of capital. Cash withdrawals from banks are restricted and the Athens Stock Exchange is closed.
At the moment, European stocks are undergoing their worst correction since 2011 and U.S. markets are set to open sharply open. There are ramifications for oil, currencies and bonds. There is still some hope that there will be some sort of rescue, but it looks like European negotiators have finally reached the end of their rope and will let events play out regardless of some of the damage that will occur. Even if Greece could make a deal, it is highly doubtful that it could even implement the reforms that would be required.
Greece isn't the only headline this morning. China cut interest rates a quarter point and also reduced reserved requirements for banks. This is extremely aggressive action and was motivated in large part by extreme volatility in the Chinese stock market, which plunged 7.4% Friday. Unfortunately, it only helped momentarily. The Chinese indices are down again but it is due in large part to the chaos in Greece.
While the major indices in the U.S. have been holding up for a while, there have been some warning signs. On Friday, in particular, the underlying action was extremely poor, although the Dow finished in positive territories. Market players dumped momentum names and most of the groups that have led the market recently underperformed.
That brings us to the trillion-dollar question: do market players rush in and buy this morning's dip like they have consistently done so often, for so long? Is this just another buying opportunity for folks that are confident that politicians and central bankers will continue to do whatever is necessary to keep the indices trending steadily upward?
Typically market players continue to do what has worked recently until it stops working. It is highly likely that there will be an attempt to catch a bounce following this poor open. Whether or not the buying is sustained is what we will have to watch for closely. There is very likely to be some stuck bulls that will be looking for an opportunity to exit into strength. A failed bounce is going to really impact the mood of this market.
While this open is likely to be very painful for many market participants, the good news is that this is the sort of chaos the market needs periodically in order to stay healthy. Market players have been complaining about the manipulation of this market for a long time and now we are going to see what happens when we don't have endless governmental support for equities.
Generally, it has been a mistake to rush and sell into this sort of open. I would try to stay patient and wouldn't be too quick to exercise stops. Many stocks that are fundamentally healthy are going to be hit very hard on this open and they will generate some interest.
It isn't very pretty out there, but the good news is that we are going to have some great opportunities to make money as this plays out.
