There still is quite a bit of uncertainty about how the Greece situation will play out, but market players are working hard to move past it. Even though there is still some murkiness about the impact of the referendum this weekend, market players are optimistic that disaster has been averted for the moment.
While the trading action was improved and we even managed a good finish, it was pretty quiet intraday. All the gains came overnight and putting capital to work intraday didn't yield a very good return. Of course, there are always a few who do well, like Synergy Pharmaceuticals (SGYP), but if you were looking to buy, it was a narrow selection.
Typically, the day before the market's Fourth of July holiday is a positive one. Volume was slow, but we have the monthly jobs report to liven things up and shift the focus back to interest rates. Nothing is expected to happen on Greece tomorrow, which may clear the way for some good old-fashioned "holiday trading." Quite often when volume thins in front of a holiday, there will be traders looking to gun some individual stocks. That can make for good trading if you can spot them early and jump on for a ride.
At the moment, we are holding up well despite continued uncertainty. There is an obvious appetite for new positions. There is some risk of another hiccup caused by Greece, but what is clear is that market players are not in a rush to use it as an excuse for a major correction.
We should have some flipping action tomorrow, but it is going to be a slow day after we digest the jobs news.
Have a good day. I'll see you tomorrow.
July 1, 2015 | 12:42 PM EDT
Market Isn't Out of the Woods on Greece
- · Stock picking returns, but there's still a lack of confidence.
Market players would like nothing better than to move past the Greece issue, but there are lingering doubts about whether a referendum will still be held, and Prime Minister Alexis Tsipras is urging a no vote. Optimism is still winning the day, but it is a struggle for the bulls to maintain their momentum. There is still fear of another reaction like we saw on Monday, but ultimately the danger of a catastrophe has diminished.
Despite the increased optimism, the indices are drifting and hovering around the lows of the day. Breadth is still quite healthy, with about 3,500 gainers to 2,100 decliners, but some of the action in our leading group, biotechnology, is lackluster. We are not seeing the sort of chasing that would typically result if market players believed a crisis has come to an end.
The good news is that we are seeing a return to stock picking. We have been trading almost totally off headlines lately, but today there is more interest in trying to find those names that may have been unfairly punished when the indices fell apart on Monday.
Technically, the key now is that we stay above the lows we hit on Monday and Tuesday. We can afford to drift a bit, but if we start testing those levels again it is going to trigger stops and some renewed short selling.
This market really would like to forget about Greece for a while, but its stench is lingering and that is preventing upside momentum from building. We are still holding up fairly well, but we are lacking confidence.
July 1, 2015 | 10:43 AM EDT
This Is a Market for Bottom Fishing, Not Momentum Chasing
- ·You have to be willing to buy more bad charts than usual.
The market is doing a nice job of holding on the gap-up open but there is still some concern that the Greece situation could fall apart again. We are going to have more news flow out of Europe to jerk us around, but at the moment market players are feeling confident that a deal will be done, just like they always expected.
We have very solid breadth and most sectors, other than oil and precious metals, are trading up. There is some unwinding of end-of-the-quarter window-dressing in groups that were marked up, like biotechnology, but overall bottom fishers are active.
This is a market for bottom fishing rather than chasing momentum, which means that chart patterns aren't driving stocks to the degree they normally would. You have to be more willing to buy bad charts if you want to put money to work after the sort of action we've had the last couple days.
I've been nibbling at a few things such as Mobileye (MBLY), SolarEdge Technologies (SEDG) and Second Sight Medical Products (EYES). My Stock of the Week, Syngery Pharmaceuticals (SGYP), is shaping up very nicely in front of a presentation at a conference scheduled on July 8.
My game plan is to keep new buys small at this point, but to establish a foothold as better charts develop. Something like EYES looks quite poor technically right now, but it is finding support around the 50-day. I'll give it some room to develop and will slowly inch back in if it doesn't take out recent lows.
Overall, we are back to a stock picker's market, but the headline news can shake things up very quickly. I'm cautiously optimistic, but keeping plenty of cash available.
July 1, 2015 | 6:54
Don't Be Too Overconfident About Greece
- The market was fooled on Monday, so be careful.
"Is the person you saved indebted to you, for the rest of their days? Or are you, through the act of saving their life, now responsible for their life?"
The headline this morning is that "Greece Is Prepared to Accept Creditors' Proposals with Changes". The market is jumping on the news, but hasn't it always been the case that Greece would accept a deal if it was changed? Apparently, after two days of capital controls, the hard-line stance of Prime Minister Alexis Tsipras is quickly dissolving.
Market players were badly burned on Monday when they believed that a deal was inevitable, so there is some skepticism this morning that an agreement will be finalized. Ultimately, it looks like the optimistic view of the crowd about Greece will be proved to be correct. They just had the timing wrong and failed to anticipate that Tsipras would actually allow a debt default to occur before a deal was made.
There is still a tremendous amount of uncertainty out there, but in the very early going we have a big gap-up open developing. Monday's action washed out plenty of folks, and now they are scrambling to load up long exposure again. The fact that it's the first day of a new quarter, with the routine cash inflows, is helpful.
It wasn't easy adding long exposure yesterday, as the Greek situation was essentially a coin flip. However, there are times when trading is nothing more than betting on the next headline. Luckily, it isn't pure slot machine action most of the time, but when dealing with a crisis like Greece we are at the mercy of the news flow.
The bears are already actively betting against this spike, but it has the potential to develop into the sort of V-shaped action that has consistently crushed the pessimist. Not only are the shorts trapped, but there is big crowd of underinvested bulls that will be anxious to find entry points.
The much more difficult question we face if the Greece crisis is at least momentarily resolved is whether we can build sustained momentum. The bears are convinced that the overall character of the market has been shifting recently, and given the action under the surface of the market, that is very hard to dispute. Beside Greece, we've had issues with China, Puerto Rico, increased interest rates, mediocre economic growth and worries about valuations.
There is a long list of negative arguments, but that has been the case for a long time and ultimately faith in the central banks has prevented any major corrections from developing. If we really do move past Greece, will the central bankers still be the same catalyst that they have been for the past five years?
My game plan is to try to move beyond this intense focus on macro matters and news headlines and focus once again on individual stock picking. The good news is that the big shakeup this week has created some interesting opportunities. Stocks were indiscriminately punished and now the cream of the crop should come back pretty quickly.
We can't be too overconfident about Greece at this point. The likelihood of more drama is high but the market is acting as if it believes that there is a potential solution. It was fooled on Monday and we still have to be careful but we should be actively looking for some new buys as the day develops.