It was another strong day for the indices, but what has been most notable about this big bounce over the last five days is that we haven't had a single strong close and we have closed within a few points of where we opened. If you missed the overnight gap, you missed the move.
But the good news is that individual stocks have been acting better than the indices. We have had very strong breadth during this run and we are seeing some hot pockets of momentum.
This market moved from oversold to overbought quite quickly and with the holiday approaching it isn't a big surprise we have some profit taking kicking in late in the day. It is very tough to put new money to work right now and if you caught this move, it makes sense to book some gains as trading is going to be extremely thin the remainder of the week.
We are at technical resistance and it is nice to see that that does actually matter. Too often, charts mislead rather than illuminate these days, but that is what happens when the only thing that matters is the Fed.
For now the V-bounce is still on, but it is losing steam.
Have a good evening. I'll see you tomorrow.
July 1, 2013 | 2:15 PM EDT
Too Stretched at This Juncture
- I have to respect that, even if it hasn't mattered so far in 2013.
The great dilemma of the market in 2013 is whether you chase strength or wait for dips that never seem to materialize. The V-shaped moves greatly favor market players who are comfortable buying stocks as they become increasingly extended. If you pay too much attention to the fact that the charts aren't very bullish, you have generally missed out.
Right now the S&P 500 is right at the point where you'd expect to see some technical resistance. It hit the 50-day simple moving average almost exactly, and is now reversing a bit. Breadth is still quite strong at better than 3-to-1 positive, but the selling is finally picking up a bit.
One of the main reasons this market has been so disliked by many market players, even though it has been quite strong, is that it never seems to offer good entry points. When the market finally does break down, it bounces straight back up -- which gives traders just a small window of opportunity in which to buy.
This market can make you feel quite foolish for selling and taking gains when you have them, but it is hard not have some sort of discipline. The most successful strategy has been assuming the role of perma-bull. However, that approach always ends in pain at some point.
I'm selling down a few things, and I am not seeing anything new I want to buy. The market is just too extended at this point, and I have to respect that fact, even if it hasn't much mattered any other time this year.
July 1, 2013 | 10:32 AM EDT
Another V-Shaped Move
- Biotech is leading the charge, and solar is also acting well.
The action this morning would be surprising if we haven't seen it happen so often in the last few years. We break down on big volume and then bounce on lighter volume and cut through overhead resistance as if it didn't even exist. It is the V-shaped move, and it is the new normal for this market.
We have very strong breadth again at nearly 4 to 1 positive, and biotechnology is leading the charge. The takeover talk involving Onyx Pharmaceuticals (ONXX) makes a lot of stocks in the sector look very cheap, and they are being chased aggressively. My main holdings in the sector are Sarepta Therapeutics (SRPT), Vertex Pharmaceuticals (VRTX), Novadaq Technologies (NVDQ) and Albany Molecular Research (AMRI).
Solar energy is also acting well, and my favorite in the group, Canadian Solar (CSIQ), is moving nicely with SunPower (SPWR). Tesla Motors (TSLA) is the hot-money favorite right now, and I had a technical buy on that this morning.
It looks like the bears are running for cover. Keep in mind that there tends to be a positive bias on the first day of a new month as new money is put to work. Also, holiday weeks also often have a positive bias, as sentiment tends to be upbeat as people look forward to some time off.
As I mentioned this morning, don't try to anticipate a market turn in this environment. If you want to short, wait for some price weakness first.
July 1, 2013 | 7:51 AM EDT
Taper Panic Has Subsided -- Temporarily
- My gain play is to stay flexible and short term during thin trading this week.
"Summer-induced stupidity. That was the diagnosis..." -- Aimee Friedman
Is the scare over Fed tapering its bond buying over? Was this just a temporary glitch that will soon be quickly forgotten as we climb back to the highs we saw in May?
We certainly acted that way last week as we went straight back up, as one Fed speaker after another reassured the market that the Fed is going to keep rates low for a long time to come.
The bond market is still skeptical but rates did ease a bit after a scary spike following Ben Bernanke's press conference two weeks ago. There is still concern that rates are going to move up, but the panic has subsided, at least temporarily.
Technically, the indices don't have particularly attractive setups as we enter the holiday week. But I hear the bulls talking about the possibility of a "melt up" during the thinner trading. Trading around holidays often has a positive bias. With the market already working on yet another V-shaped rally, the potential exists for a further move higher.
If you applied textbook technical analysis to the major indices, there would be no reason to be very bullish. We have a lower volume bounce into resistance following a breakdown. Normally, this would be the point where trapped bulls would be selling and shorts reloading. But that sort of failed bounce just doesn't seem to occur like it did before the market low back in 2009.
A low volume, straight-up bounce is now more likely to be a setup for further upside than a setup for a rollover. I was thinking that if the Fed really is starting to send a message that tapering is coming soon, the bounce might not last this time. But once again the mood shifted as the market regained confidence that Ben Bernanke and his crew isn't going to let this market obsess over higher rates for very long.
The Russell Index rebalancing caused some chaos at the close on Friday. The market is shrugging that off, however, on some good economic news out of Europe and old-fashioned Monday morning optimism. Once again, the bears are already getting in trouble, trying to catch another market top. They never seem to learn that the tendency of this market is to bounce much higher than they think it should. I've learned to not try to short action like this. If you want to short, you have to wait for some actual signs of weakness first. Do not anticipate based on some fundamental arguments. Wait for price action to reflect some actual worry.
I reviewed quite a few charts this weekend and wasn't particularly impressed with what I saw. The Russell rebalancing messed up quite a few small-caps with big volume surges on Friday. But even without that, there just wasn't much that I wanted to chase at this point.
We will see how things develop after the open, but my gain play is to stay flexible and short term during thin trading this week.