The market did a nice job of building on yesterday's oversold bounce, which has the bulls feeling optimistic that another V-shaped recovery can develop. The FOMC interest rate announcement was a mild positive as the tone was modestly dovish and didn't suggest any desire to raise rates quickly. The recovery in China stocks also helped the tone.
The best action today came in the stocks that have acted the worst recently. Many of the best movers were oil- or commodity-related and have been languishing at new lows in recent days. We had some continuation moves in momentum stocks but some blow-ups as well. Biotechnology underperformed today, making it difficult for momentum players.
Tomorrow we will have a good test of the V-ish action. We are no longer oversold and there isn't any major macro catalyst on the agenda. We have some earnings reports such as Facebook (FB) that will garner attention, but it will be a good environment for the bulls to prove they really are back in control of the action. (Facebook is part of TheStreet's Action Alerts PLUS portfolio.)
What I find most challenging about this market right now is being aggressive with some new buys. There just isn't much on my radar. That is highly subjective, but other traders have expressed the same sentiment. Of course, the market's typical response to that complaint is to just move higher and make it even more difficult, but that isn't anything new. We just have to keep on keeping on.
I have to run to an appointment. Have a good evening and I'll see you tomorrow.
July 29, 2015 | 2:22 PM EDT
Sorry, No Fed Effect Today
- · The market did its usual jig on the news and went along its merry way.
The Federal Open Market Committee's policy statement leaves the timing of future rate hikes vague. There are some comments about how economic activity is expanding moderately and job gains are solid but inflation is still low. There is no rush to raise rates right now. The key sentence seems to be, 'even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.'
The market was expecting a dovish tone and that seems what we have. The Fed continues to be vague with some cheery words about economic growth and no real worries about inflation. There simply isn't any big hurry to make any moves soon.
The market did its traditional jig on the news and is now back to where it started. We'll have the usual pundits slice and dice this news but there really is nothing new here. Interest rate hikes aren't going to happen right away and that is all the market cares about now.
We may see a little sell-the-news action, but there is no big catalyst from the Fed today. Few folks expected a hike as early as September, and that seems to be confirmed with today's statement.
July 29, 2015 | 10:11 AM EDT
Make Sure You Don't Get Caught in a Breakdown
- Nothing much sticks out to the upside right now.
After the bounce yesterday we have a little follow through this morning, but traders aren't being very aggressive in front of the FOMC interest rate announcement. Breadth is running just slightly positive and we have the defensive group, pharmaceuticals, leading, while the speculative group, biotechnology, lags.
The momentum screens are mixed, with nothing much sticking out to the upside. On the downside the internet security names, VASCO Data Security International (VDSI) and Tableau Software (DATA), are very weak and biotechnology names like Biogen (BIIB) and Esperion Therapeutics (ESPR) continue to struggle.
Many folks were acting like the bounce yesterday was a major shift for the market. That is understandable, given the propensity for V-shaped moves, but it really was nothing more than a good oversold bounce after a five-day selloff. There are still technical issues to deal with, especially some significant overhead resistance.
I see very little to do right now other than managing stops and making sure you aren't caught in a breakdown.
I have nothing on my buy list at the moment although I'm interested in Action Alerts PLUS charity portfolio holding Facebook (FB) and in Bio Telemetry (BEAT) after they report earnings.
July 29 | 7:45
To 'V' or Not to 'V'? That Is the Question
- This market loves the Fed, as well as a good old V-bounce.
"Strength and growth come only through continuous effort and struggle."
-- Napoleon Hill
It was a solid day of gains on Tuesday, but the phrase "dead cat bounce" was on the lips of many. We were due for a good day after the longest losing streak for the S&P500 since January, but market players are a bit uneasy about concluding that the worst is over.
The biggest complaint about the action on Tuesday was that it was led primarily by the lagging and badly oversold bounce. There was no emergence of new leadership. Breadth was very good, but for many stocks it was simply a respite after a bad run.
Over the last five years one of the easiest mistakes to make in the market has been to underestimate its ability to produce a V-shaped bounce. Repeatedly, we've seen low-quality bounces turn into sustained upside moves. Typically, volume is lacking and the bounces are questioned, but they keep on going and the underinvested bulls are forced to chase, which keeps things running.
Many folks keep predicting that the days of V-shaped moves are coming to an end. We no longer have the same support from central bankers that markets once enjoyed, and they always were the primary catalyst for providing the buying power needed to help the market quickly recovery from its setbacks.
It just so happens that we have the FOMC interest rate announcement today, which may assist with the potential for another V-shaped move. The chance that a rate hike will be announced today is zero, but the key is that there is now a reduced chance of any hike in September as well.
The combination of the meltdown in China and the problems in the oil and commodities market will help to keep the Fed on hold. There are still few signs of inflation and the economic recovery is still proceeding very slowly.
Another positive today is that the China markets have bounced back again. The government there is desperate to manipulate shares higher and they were successful overnight. Shanghai bounced 3.4% and Shenzhen was up over 4%. You still have to wonder if all these efforts can really establish firm support, but they are going to spend many billions finding out.
The key thing to keep in mind today is that the market loves to love the Fed. There is a strong tendency to react positively to whatever the Fed may do. Janet Yellen and her crew are always careful about upsetting the equities market, even when they are sounding a bit more hawkish.
The market hasn't been very concerned with the Fed lately and any signal that rate hikes are being pushed back is going to give the bulls reason to keep the bounce going.
To "V" or not to "V" is the question. This market loves the V and with China bouncing, Europe doing well and the Fed likely to be dovish, the conditions are good for some V-ish action.