This morning it looked like our two-day bounce was about to come to an end. We started off quite poorly, but the indices found support and the computers gave us a steady lift the rest of the day. We didn't get big gains and breadth was just slightly positive, but the intraday recovery and close near the highs were positives.
One of the big challenges of this market in 2015 has been that there has often been good support but then upside momentum has been limited. We have not been able to cut through to new highs as quickly or as easily as in the past.
After the three-day bounce into a summer Friday and the last trading day of the month, there will be some traders looking for a pullback. They were looking for one this morning and were trapped by the bounce that occurred for no particular reason. The earnings news has been mixed and the economic reports and overseas news haven't been very notable.
The bulls are going to tell us it's our old friend, the V-shaped bounce, and we should be very leery of trying to fight it. Technically, this action is very suspect, but V-shaped moves have never made a lot of sense from a pure technical standpoint.
Setups are sparse and overhead resistance becomes tougher, but the bulls are pushing and have trapped the bears a couple of times lately. There may not be compelling reasons for wild bullishness, but the price action isn't all that bad.
Have a good evening. I'll see you tomorrow.
July 30, 2015 | 1:45 PM EDT
Rise of the Computers
- · It looks like buy programs were triggered just as downside momentum began to build.
Just like Tuesday, it looks like computer buy programs were triggered just as downside momentum began to build this morning. The signature of this sort of action is that the move is nearly straight-up once it begins. There may be some hesitation but once the buy programs go to work, they just keep on pushing.
Despite the recovery from the lows it is still very mixed action. Breadth is close to even with about the same number of new highs as new lows. Biotechnology made a big turn from negative territory, which is the primary positive that I see but momentum is mixed and while we are back to flat, there isn't much of an appetite for chasing.
Many of the oil stocks that bounced yesterday are rolling over again today. Upside leadership contains no obvious themes other than some stocks that are moving on good earnings. It is good that the market is trading off the lows, but buyers don't seem convinced that they should be chasing things higher to put cash to work.
Some of the action is a symptom of slower summer trade and some of it is that we no longer have central bankers driving the action like they once did. Nonetheless, the bounce off the early lows is a good sign but this move over the last couple of days is still little more than a healthy oversold bounce after a technical breakdown.
July 30, 2015 | 10:33 AM EDT
An Ugly Failed Bounce
- There are few signs of support right now.
In general, routine oversold bounces like the one we've seen the last couple days have high odds of failing. Many market players have forgotten that point, as we've seen many V-shaped moves that started as unconvincing oversold bounces. After a breakdown there's a run up for a few days that just keeps going, which makes skeptics feel foolish.
What we have developing this morning is a very ugly bounce failure. The open was slightly weak with a feeble bounce attempt and now the selling is gaining momentum. Breadth is 2-to-1 negative, with only about 70 new highs, and biotechnology is being smacked. There is minor strength in semiconductors and a few earnings plays like Skechers (SKX) but there are few signs of support out there right now.
I've made a few sales, including Synergy Pharmaceuticals (SGYP), which finally had the news I was looking for and it is now being sold aggressively.
I'm interesting in re-establishing a position in Facebook (FB) and I have taken a token position on weakness this morning. The stock is falling into the gap from earlier this month and needs to find support before I'd be inclined to add. Overall, the pattern is still pretty good but it needs to build a base in the $92 to $95 level and that may take a little time.
Mobileye (MBLY) is one of the few momentum names that is still interesting but it is a very tough environment right now. We are seeing a little support as I write, but the selling is going has tempered the recent bullishness.
At the time of publication, Rev Shark was long SGYP and FB, although positions may change at any time.
July 30, 2015 | 7:42 AM EDT
This Isn't an Easy Market
Greece isn't saved every day, and the Fed is on hold.
"Life is 10% what happens to me and 90% how I react to it".
--Charles R. Swindoll
Although the Fed remained quite vague in its policy statement on Wednesday, it helped to keep the oversold bounce going. Hopes of yet another V-shaped ride back to the highs are intact, but earnings reports were mixed and early indications are flat.
Some pundits claim that the FOMC policy statement has set the stage for a September hike. The argument is that the conditions for a hike, primarily an improvement in employment, have now been met.
However, other pundits claim that low inflation, pressure on oil and commodities and the problems in China will prevent any Fed action until at least December.
The good news is that the market doesn't seem to be that sensitive to the debate. It has accepted the fact that there are going to be some minor rate hikes fairly soon, but overall there are still sufficient negatives to prevent aggressive action by the Fed.
The Fed needs to raise rates mainly to preserve its credibility and the idea that there really is some economic improvement six years after the Great Recession. It is the worst economic recovery since the 1930s, but the Fed isn't going to ever admit that.
The big question today is whether the bulls can build on a pretty good two-day run. Earnings last night weren't particularly good, China is trading down again and Royal Dutch Shell (RDS.A; RDS.B) warned that lower oil prices could persist for years. We did have a few good reports from the likes of Skechers (SKX) but Whole Foods Market (WFM) and Qorvo (QRVO) were poor, and Facebook (FB) was mixed.
Technically, the S&P500 is the best looking of the indices, with the most impressive recovery over the last couple days. The iShares Russell 2000 (IWM) is still significantly below key resistance levels and reflects the limited interest in speculative stocks right now.
Much of the recent strength has been caused by bounces in the worst stocks. The list of stocks making new 12-month highs is quite short, with just over 100 names on it. The key momentum groups have done little the upside lately, and the leadership we had seen a week or so ago from Action Alerts PLUS charity portfolio holdings Google (GOOGL) and Facebook and Growth Seeker portfolio holding Amazon.com (AMZN) has tapered out.
The recovery of the last couple days has helped to temper the negativity that had been building, but there doesn't seem to be great anxiety to chase things higher. The key to V-shaped moves is the fear of being left out as the market keeps on running. There is some fear of underperformance, but it isn't at levels that have really driven this market in the past.
We do have end of the month manipulation that could help to hold things up, but seasonality is very negative as we head into August and peak vacation time on Wall Street. There aren't many big catalysts out there right now.
Greece isn't being saved on a daily basis, and the games played by the government in China to control its stock market amount to a farce. The Fed is now back on hold for a while and earnings season is starting to wind down. The indices have worked off their oversold conditions and there isn't any compelling reason to believe that a technical breakout is about to occur.
While there isn't anything overtly negative right now, there aren't a lot of positives either. My game plan is to stick with good charts and manage them carefully. This market isn't nearly as easy as many seem to think it is.