After the carnage we suffered on Monday, it wasn't much of a bounce, but there was a collective sigh of relief that downside momentum didn't build. Breadth wasn't bad at nearly 2-to-1 positive and the momentum screens were even better, but buyers were hesitant as there is still much uncertainty over Greece.
There is a teleconference scheduled for Eurogroup members at 5:30 a.m. ET Wednesday to discuss some possible solutions to the Greek situation. That gave the market a little optimism this afternoon, but no one knows for sure how this will play out. Last week nearly everyone was certain a deal would be made before the big payment by Greece was due today. They were dead wrong and paid a price on Monday.
The action today was probably affected by the fact that it was the last day of the June quarter. Many money managers are anxious for a last-minute boost after the ugliness we suffered on Monday. That probably helped keep the mood a bit more positive than it would have otherwise been.
At this point, the Greece situation is a coin flip. There were plenty of folks very anxious for a resolution and they helped to provide a little green today, but anyone who thinks they know how this is going to play out is fooling themselves. The best way to deal with uncertainty is to simply wait for news. You don't have to guess what will happen. Just react quickly when things do finally change.
Be ready for some volatility tomorrow. I'll see you in the morning.
June 30, 2015 | 1:57 PM EDT
A Good Cleanout Is Refreshing
- ·And so is a shift in emotions.
The indices are trying hard to stay in positive territory, but we are in a news vacuum at the moment. Market players are waiting for the next headline about Greece. After the way they were burned over the weekend, confidence levels are low and there isn't much appetite for trying to anticipate a positive development.
Breadth has slid from about 4-to-1 positive to about 3-to-2. Interestingly, the momentum and speculative names are showing some relative strength. A lot of these stocks have suffered some technical damage, but they are bouncing rather well at the moment.
One thing we haven't heard much about in recent weeks is that the average stock has already corrected quite a bit. One of my favorite indicators is the measure of the percentage of stocks trading over their 40-day moving average of price. This indicator has substantially underperformed the indices. In fact, it is around 27 right now, which is the same place it was back in December, when the S&P500 was nearly a 100 points lower. The average stock has done poorly, but it is covered up by the indices.
Will this market action isn't providing much opportunity at the moment, I continue to be optimistic about the way things are developing. It is refreshing to actually have a good cleanout and a shift in emotions. The never-ending bullishness and constant manipulation has been good for indexers, but good trading thrives on volatility and it is picking up.
June 30, 2015 | 10:20
I Don't Believe This Correction Is Over
- There just is no certainty and there's very little trust.
Despite the gap up open, or maybe because of it, trust levels are very low. The biggest problem is that there still is no clarity about Greece. Nothing new is expected today and the bulls are hoping that the worst may have already been priced in, but there is just no certainty. Standards & Poor isn't helping the situation much with a comment that there is more harm from a potential Puerto Rican default than from Greece.
We have breadth running about four to one positives, but the bounces are fairly mild. Biotechnology is leading due in large part to Juno (JUNO) and associated stocks like bluebird bio (BLUE), Lion Biotechnologies (LBIO) and Kite Pharma (KITE).
The momentum screens are looking better as names like Netflix (NFLX), Tesla (TSLA), Amazon.com (AMZN) and Eagle Pharmaceuticals (EGRX) bounce back, but the indices are hovering at day lows and need to head back up to day highs to suck in more buyers. Market players used to immediately chase action like this, but they are definitely less confident.
I do not see any reason to do any major buying right now. I may nibble at a few things as the day progresses, but I see no reason to believe that this correction is completed. I'm excited about the opportunities that are developing, but the key now is timing and that is going to require vigilance and patience.
Synergy Pharmaceuticals (SGYP), my Stock of the Week, continues to look ok but I don't plan on adding to it at this point.
June 30, 2015 | 7:40
Have a Shopping List Ready
- If things do improve, the market will turn very quickly.
"Traders have been smacked into action and a real wake-up call has been provided."
--Chris Weston, Chief Market Strategist, IG Markets
One of the basic characteristics of the market that has changed over the last few years is that it doesn't tend to build downside momentum. We'll have some poor action, and just when it looks like we are the brink of a major technical breakdown, we'll find support and bounce back up.
For a while the V-shaped bounces were so common that market players would joke about their frequency and certainty. We not only would bounce back, but would completely forget any and all negatives and would soon be making new highs.
The reason for this behavior was confidence that central banks would continue to pump out cheap cash and do whatever was necessary to keep markets running. The People's Bank of China is doing exactly that right now to prop up that market, which has undergone tremendous volatility lately.
The Greece situation caught the market by surprise. The majority of market players were confident that the situation would be deferred in some way, like it has been for five years. The defiance of Tsipras and his willingness to allow a debt default to actually occur was not anticipated, which is why we had yesterday's selloff.
The bulls continue to remind us that Greece is only 2% of eurozone GDP and that the market should be able to quickly discount the cost of this mess. However, that is not happening, mainly because there are just too many unknowns. Not only is there uncertainty about the ramifications on the eurozone, but the market has already been facing issues such as valuations, higher interest rates and the very slow economic recovery.
We have a bounce this morning as some market players mumble about "overreaction," but the skeptics are warning about chasing early strength. The action yesterday trapped an awful lot of folks and many of them will be trying to escape into some strength. This time there is no talk at all about V-shaped moves and quick-and-easy recoveries.
Technically, the indices are at key technical junctures. The uptrend that has been in place for quite a while isn't yet broken, but it is under extreme pressure. We are at the point where we have been saved so often before. If the behavior shifts and we see further downside today, it will be a major change in character and will be an indication that we are really in for a real correction.
The S&P500 finished yesterday right at its 200-day simple moving average, which is key support. We are still above the March lows, but the support here is not very strong. The DJIA has already broken its key support and looks worse technically, while the Nasdaq and iShares Trust - iShares Russell 2000 ETF (IWM) have shown better relative strength.
In all cases, the support is precarious and if the early bounce does not hold it is going to quickly trigger another round of selling. The news flow is extremely fluid and there is always the possibility that the eurozone will come up with some solution. Right now it looks like we will have to wait until Greece holds its vote at the weekend, but the chances of some sort of deal are not that remote.
One thing to keep in mind right now is that this action is macro-driven, which means that everything is being driven. The market is not concerned with separating good stocks from the bad. They are all being dumped out of fear.
The good news is that this wholesale selling is what will produce some exceptional opportunities once we find support. The best stocks will come back big and fast and we can do very well trading them if our timing is right.
The key is to be ready to act and the way you do that is to have a shopping list ready. It is very important to start tracking the names of interest and maybe even nibble here and there to make sure you stay engaged. When we come back it will happen quickly and it is extremely important that we be ready to act decisively.
Today is going to be an extremely important day for the market. If we can hold a bounce and find support, the chances of a recovery are good, but there are a slew of negatives and uncertainties and if we test the lows again there is going to be even more fear.
This is not a market that we want to rush to buy right now, as the chances of a failed bounce are so high, but there is the possibility that those dip buyers may show some interest once again.
