It was another winning day for the bulls, but the momentum slowed a bit and the indices, particularly the Russell 2000, flat-lined much of the day. The most peculiar thing about the action was that the indices stayed close to their highs while breadth slipped, with only 14 gainers to 12 losers on the Nasdaq at the close. Strength in big-caps like Apple (AAPL) and Google (GOOGL) helped to hold up the indices while minor erosion occurred under the surface.
The big event later this week is the Jackson Hole conference in Wyoming. This has been a consistently positive event for the market and the anticipation of market friendly headlines is helping to keep things elevated.
The easy thing to do is start anticipating profit taking and softness since we've seen a big run. The hard thing is to stick with the market and keep pushing for more exposure. The pattern has been for the optimists to win the battle, but with the light volume and flat intraday ranges it is very easy to sell.
It may sound simplistic but the old saying "The trend is your friend" continues to be the best approach to this market.
Have a good evening. I'll see you tomorrow.
Aug 19, 2014 | 1:31 PM EDT
In the Dead Zone
- More traders are easing up intraday.
The indices are hovering around their highs but breadth has faded a little, and there are key reversals in a few momentum names amid quite a bit of churning. Obviously, volume is lackluster and will remain so until Labor Day, but it is looking a bit tired after the run the market has had.
The issue you confront at this point is whether you should take profits and risk being on the sidelines if we don't see a pullback or basing action, or do you stay "long and strong" and count on the momentum to continue. As I've discussed, the bullish bias has been the way to go but it is hard to resist locking in partial gains into this strength.
Stylistically, this market has favored a patient approach rather than active trading, but the very slow movement intraday often drives market players to make moves just to stay busy. I find more and more traders are dealing with that by taking a break and moving away from the screens for a while intraday. Recently, we seem to have an increase in dead periods during the day.
The indices will trade in extremely tight ranges for long periods. I've also noticed that there is often a lack of correlation between breadth and the indices with them moving in opposite directions at times. This is probably a function of aggressive trading of index ETFs. It used to be that individual stocks moved the indices, but now it's often ETFs driving the rest of the market.
There are some subtle signs of profit taking but still plenty of support. I've pared back a few things, but I'm still looking for new buys.
The Bulls Are Running
- Market players continue to hunt for long exposure.
Aug 19, 2014 | 10:20 AM EDT
The chase continues as market players continue to hunt for long exposure. The theme of the market for most of the year has been the fear of being left behind, and we are seeing it again this morning. Breadth is impressive again at better than 2 to 1 positive, and small-caps have finally managed to recapture their 50-day simple moving average.
The group that is attracting the most attention from traders is the China-related names. There are plenty of big movers in that group including JD. Com (JD), my Stock of the Week, as well as 58.com (WUBA), Tuniu (TOUR), China Finance Online (JRJC), Tarena International (TEDU), China HSG Real Estate (HGSH) and Cheetah Mobile (CMCM).
We are at the point in the action where the bears are sure that the market is too extended to keep running, but they keep getting squeezed as they build short positions. That keeps a bid under the market and forces underinvested bulls to chase.
I don't want to sound too sanguine as you still need to be selective with your buys but right now, but the bulls have the momentum and they are doing a good job of running with it.
Aug 19, 2014 | 7:45 AM EDT
Stick With the Price Action
The secret is to not try to anticipate a turn.
"I am the greatest; I said that even before I knew I was"
--Muhammad Ali
The easiest mistake to make in a market like we have now is to focus too much on why it isn't so great. Traders are anxious to stay one step ahead, so it is understandable that they start to look for reasons to be negative; but this has been a costly tendency in this market for quite some time. Momentum tends to last longer than seems reasonable and if you are too quick to anticipate its end, you find yourself underinvested and trying to keep pace.
Underestimating market strength has been the cause of massive underperformance for several years now. Legions of market players are convinced that a day of reckoning is coming soon and that the most likely catalyst will be rising interest rates. They keep anticipating a more hawkish Fed and then are disappointed when there is still enough economic weakness to prevent any sort of aggressive reversal by Janet Yellen and her crew.
Part of the catalyst for the strong action is likely anticipation that the Fed will continue to be supportive of the market at the Jackson Hole conference that starts later this week. The market has had a positive reaction to Jackson Hole for seven years straight and it is looking for the streak to continue.
Probably the biggest positive yesterday was that small-caps were showing signs of trying to catch up with the broader market. It has been big-cap momentum names that have been pushing the Nasdaq to the highest levels since 2000; but what we have been missing is good speculative action in secondary stocks. Yesterday there were quite a few pockets of strength in many small stocks, particularly China-related names like China Finance Online (JRJC) and Sky-mobi (MOBI).
The secret to dealing with this market is pretty obvious -- stick with the price action and don't try to anticipate a turn. The time to be bearish is when the action turns poor. If you try to predict a market collapse, you will likely end up underinvested and chasing performance when things don't turn.
We have good earnings from Home Depot (HD) this morning and overseas markets gained in sympathy with the U.S. There is money out there still looking for a place to go. If you want to be bearish it is quite easy, but if you want to make money you have to focus on finding stocks to buy. The trading volume is thin, but there are good pockets of action.
CPI and housing starts are coming up at 8.30 am ET and will give us a jiggle but the focus of this market is where to put some cash.
