The mood was upbeat this morning as market players shrugged off an ugly response to Disney (DIS) earnings and a downgrade of Apple (AAPL). There was an absolute frenzy of buying at the open with breadth hitting 4-to-1 positive.
Over the last few years action like this typically gained momentum as bears were squeezed and underinvested bulls scramble to add long exposure. That was not the case today. The indices hit intraday highs about an hour into trading and formed a head-and-shoulders top, then closed weakly.
While there were still gains, especially in the Nasdaq, breadth was only a bit better than flat and the early euphoria had dissipated. One bright spot was relative performance of momentum names like Priceline (PCLN), Google (GOOGL) and Amazon (AMZN), but it turned into a mixed day as new lows approached 400 vs. just 270 new highs.
What was notable was a shift in the usual pattern. You can argue that this is because it is a last-stage rally and uncertainty is growing, but the bulls seemed unperturbed and shrugged it off as just an aberration with no real meaning.
The aggressiveness of the early buying was surprising since it came on no real news, but the intraday reversal didn't have any obvious catalyst either. Market players will start looking forward to Friday's monthly jobs report and how it may affect the Fed. This is one of the more important jobs reports in a while, and we will see some positions tomorrow in front of the news.
Given the intraday reversal today it was not a decisive victory for the bulls but we are still holding support and the vigor of the early buying was impressive. The bulls will have another chance tomorrow but intraday failures are going to change the tone of this market fast.
Have a good evening. I'll see you tomorrow.
Aug. 5, 2015 | 12:46 PM EDT
A Rare Intraday Reversal
- The failed spike after frenzied morning buying will energize the bears.
After a frenzied start this morning there's been a sharp intraday reversal and the indices are now trading below the early lows. It is unusual for this market to suffer intraday reversals, especially when there is such aggressive buying at the start. Typically it causes the underinvested bulls on the sidelines to start chasing, and we don't see many pullbacks. The action today is different but we'll see where we end up. A close at the lows or in the red will be another signal that the mood of the market is undergoing a shift.
Like many, I was surprised by the strength this morning. There wasn't any obvious catalyst although the chatter over the Fed's intentions seems to be receiving the credit for the move. The key to navigating action is being mentally prepared. After three negative days and meaningless action yesterday, plenty of market players weren't expecting much to happen. Now we'll see if being caught by surprise will produce sustained upside.
The selling continues to pick up as I write and breadth is now down from 4-to-1 positive to about 3-to-2. We still have good relative strength on the momentum screens but there a lot of fades are kicking in.
Market players are not used to intraday reversals. They need to regroup quickly and not let the indices go red. A failed spike after the frenzied buying this morning is a rare event that is going to energize some bears. We'll see how we close, but this is a worrisome development.
Aug. 5, 2015 | 10:05 AM EDT
The Chase Is Back on
- Anxiety over being left out is rising.
Once again this market proves that it can shift its mood faster than a teenager. This time it is very positive change and market players are scrambling to put cash to work. Breadth is running nearly 4-to-1 positive and it's a sea of green out there.
Ironically two of the leading big-caps of recent years, Disney (DIS) and Apple (AAPL), are trading down and putting a crimp in the gains of the indices. These two stocks were generally viewed as safe and conservative and there was plenty of cash parked there by various funds. That money is coming out of those two names but it is being redeployed elsewhere and that is part of the reason for the great breadth.
If you want an explanation for the strong action it can probably be attributed to a lower-than-expected ADP employment report and comments by Federal Reserve Governor Jerome Powell that an interest rate hike in September is still quite uncertain. Yesterday, a different Fed official, Dennis Lockhart, made hawkish comments that caused some of the afternoon weakness.
The chase is back on this morning and the anxiety over being left out is rising. This sort of action leads to V-ish action, so it will be a good test to see if the market mood remains the same.
I've cut back on Fitbit (FIT) in front of its earnings tonight and I'm looking at building up Facebook (FB) again. I'm planning on taking a few vacation days so I'm not too much new.
Aug. 5, 2015 | 6:51 AM EDT
Seasonality Favors the Bears
- But there are enough reasons to be bullish too.
"We demand rigidly defined areas of doubt and uncertainty!"
-- Douglas Adams, "The Hitchhiker's Guide to the Galaxy"
If you have a bullish bias, the market offers sufficient positives to make you feel pretty good, and if you have a bearish bias there are enough negatives to make you believe that pessimism is warranted. If you strive to be objective, there is little choice but to be uncertain about market conditions.
There is nothing really terrible about recent market action, but there isn't anything overtly positive either. We had a sizable oversold bounce after an ugly breakdown, following news that Greece was saved. Chaos in China and pervasive weakness in oil and commodities kept the pressure on. In the last few days, some very ugly technical action in Action Alerts PLUS charity portfolio holding Apple (AAPL), the market's leading stock for a long while, has added to the negatives.
Breadth has been poor the last few days, but there are still some breakouts and a few pockets of momentum that have kept the chasers busy. However, sustained movement of strong stocks is limited and earnings season hasn't yield many positives. Disney (DIS) is adding to the list of disappointments this morning.
While the indices are still holding key technical levels, only 37% of stocks are trading above the very important 200-day simple moving average.
Seasonality favors the bears and there are worries that Friday's payroll numbers are going to fan flames of worry about a potential Fed hike. On the other hand, economic news hasn't been that bad and central banks in Europe and Asia are still quite dovish.
There just isn't any clear trend right now. Both sides can make very compelling cases for their positions, but the price action isn't supporting either side with any great conviction. It is just as foolish to be wildly bullish right now as it is to be wildly bearish. We are in stuck in a trading range and waiting for greatly clarity.
My advice to market timing has always been to let the price action be your guide. Rather than try to guess how things will play out, react as the price action develops and try to ride the trends as they develop. Pundits love to make predictions about how macro events will impact market action, but they might as well flip a coin in most cases.
The best way to handle a market that lacks clarity is with simple vigilance. Watch individual stocks and see how they act. Are their breakouts gaining momentum? Are there key leadership stocks breaking down? How is breadth? What are small caps and various sectors doing? Are there technical setups that are working?
Answer those questions, and you'll have very good insight into where the market is heading. At the moment the answers are quite murky and subject to change, which means that we should maintain an open mind and wait for further developments.