"The toughest thing about success is that you've got to keep on being a success."
-- Irving Berlin
A better than expected jobs report on a slow summer Friday finally broke the S&P 500 out of its long trading range. The big issue now is whether the market can build on that momentum.
The conventional wisdom is that long trading ranges lead to big moves. The greater the level of consolidation, the more pent-up energy there will be to drive stocks.
While that is logical when dealing with normal human emotions, this market must also deal with the computer algorithms that are designed to manipulate and frustrate traders who are looking for obvious and simplistic average. The fact that we saw the recent trading range crack to the downside last Thursday morning before it broke to the upside on Friday is a particularly good example of the way this market often operates.
There is likely to be a good level of skepticism about the bull's ability to sustain momentum and build on Friday's move. It is a clear breakout, but there are some questions whether the jobs numbers really are as strong as many folks would like to believe. The chances of a Fed rate hike went up quite a bit and precious metals were hit hard, but the pattern lately has been for other economic news to come in weak and push the central bankers to a more dovish stance once again.
While there will be some doubts about this breakout move in the indices, what helps to make it much more convincing is the action in individual stocks. This is not an index-driven market like we had much of last year. The action in individual stocks has been quite strong throughout this trading range action. We have had very good breadth and the numbers of new highs keep piling up. On Friday there were over 575 stocks making new 12-month highs.
For much of 2015 we had action that was the opposite of this. The great bulk of stocks acted poorly while the indices worked higher due to action in big-cap names like Amazon.com (AMZN) , Facebook (FB) , Google (GOOGL) and Apple (AAPL) . This time it is the small stocks that are providing the best opportunity. It is a market for stock pickers, not macro strategy. That is good news for fast-moving individual traders that like to dig for good ideas.
A few names that I'm watching include big caps Adobe (ADBE) , FB, Alibaba (BABA) , salesforce.com (CRM) and GrubHub (GRUB) . Some other names of interest include Splunk (SPLK) , TPI Composites (TPIC) , Energous Group (WATT) , NeoPhotonics (NPTN) , Nektar Therapeutics (NKTR) and Veeva Systems (VEEV) .
We are set for a positive open, but the dip buyers are anxious to buy pullbacks, so don't be too worried if we see an early fade.