It was another day of complacent action but the upside moves were more contained. The Dow Jones Industrial Average led to the upside but small-caps stayed in the red. Breadth on the Nasdaq was only 1,000 gainers to 1,670 losers.
The big positive was that there continued to be some good pockets of speculative action. Traders are staying active and looking for opportunities even when the indices aren't doing much.
The Fed minutes turned out to be a non-event, even though some commentators felt that they were more hawkish than the last policy announcement. Tomorrow, Fed Chief Janet Yellen will be speaking at the Jackson Hole conference and we'll get some further insight into the Fed's actual level of hawkishness. The market doesn't seem much worried about the timing of rate hikes right now. But that could change quickly and it will be the topic of conversation tomorrow.
There was good reason for some pullbacks today, but the market held steady and barely ticked down. That is impressive support for a market that is trading thinly and is a bit extended. The Jackson Hole conference has been a positive for the market for seven years running and market players are obviously expecting that trend to continue. Have a good evening. I'll see you tomorrow.
Aug. 20, 2014 | 1:35 PM EDT
The Fed Is Already Old News
- Jackson Hole is a more likely catalyst.
The Fed minutes are coming up shortly, but the market pattern remains unchanged. There is some spiking in the S&P 500 but we've had very flat interest action again. Breadth has improved steadily and there isn't any good reason to sell.
Probably the worst thing you can say about this market is that the mood is very complacent. There aren't any major worries about the Fed upsetting things. In fact, the greater fear seems to be that the Fed will be dovish and send stocks up even more.
Betting that the Fed is suddenly going to be less market friendly is what the bears have been counting on for years. They have been burned looking for a spike in interest rates. At some point the Fed will be a headwind, but trying to anticipate when is impossible. All you can do in a market like this is keep looking for buys. Plenty of folks are doing just that, which is why we are seeing pockets of strong speculative action.
We'll see what happens with the Fed minutes, but it is old news; the comments from Jackson Hole, Wyo., tomorrow are more likely to be catalysts.
Aug. 20, 2014 | 10:31 AM EDT
Still a Buyer
- But I'm being more selective and keeping stops tight.
The dip buyers did a nice job of bouncing the S&P 500 following its gap-down open, but breadth is running 2 to 1 negative and small-caps are lagging badly. There are a few pockets of speculative action, but the big-cap momentum names are taking a rest and that is affecting the tone of trading.
The action of the past week or so has helped to boost the appetite for speculation in some small-caps. We have seen China Finance Online (JRJC), Taser International (TASR), Digital Ally (DGLY), Sky-mobi (MOBI) and others make big moves, and now traders are anxiously looking for the next play. This morning they are seizing on Pernix Therapeutics (PTX), Leju (LEJU), Highpower International (HPJ) and E-House (China) Holdings (EJ).
The conventional wisdom is that this sort of "frothy" trading is a sign of a top, but I've found that not to be the case at all. If market players are willing to speculate in stocks with higher risk, they are going to provide good support if bigger, more conservative names pull back a bit.
Keep in mind that minutes of the last Fed meeting are due at 2 p.m. EDT. We are going to hear talk of the Fed's agenda, and that may provide convenient excuses to lock in recent gains.
There is nothing wrong with this market other than being a big extended during a slow period of the year. I'm still a buyer, but I'm being more selective and keeping stops tight.
Aug. 20, 2014 | 7:42 AM EDT
Once Again, Stick With the Trend
- Of course, the bears are hoping the Fed will derail it.
Headlines, in a way, are what mislead you because bad news is a headline, and gradual improvement is not. --Bill Gates
Will the Federal Reserve derail the market uptrend? That is what the bears are once again hoping for -- but it has been a futile wish in the past. It is going to take something new and surprising to upset this market.
Later today, we're set to receive minutes from the Fed meeting that took place about three weeks ago. At that time, there had been talk that there is still plenty of slack in the labor market and that there is no rush to raise interest rates on U.S. Treasuries. The market ignored the news at first, but it later sold off on other geopolitical concerns.
The subsequent market softness did cause some concern that the Fed would move to a more hawkish stance and that it would no longer be the market tailwind it once was. But, of course, as soon as that view started to circulate the indices produced another straight-up, "V"-shaped moved and were quickly back at all-time highs. The bears, who thought it would finally be different this time, were once again proven wrong.
We will rehash that Fed meeting later today -- but, more important, Fed Chair Janet Yellen and a number of other Fed members will be at the Jackson Hole, Wyo., economic conference starting Thursday. Some important news flow is likely from the gathering, and the big issue will be whether the market will use that as an excuse to sell off a bit. The indices are a bit technically extended on light volume, so there is potential for some "sell the news" action. But, once again, that has not been a good bet in this market environment.
The most interesting recent aspect of the market has been the sanguine mood and lack of any real worry or concern. Market players still aren't celebratory about the indices hitting new highs, but they don't want to be left out, and they are working hard to put cash to work. Apple (AAPL) benefited from this tendency Tuesday, and that helped to drive the markets higher.
The most important rule of late has been to avoid fighting the trend. However, you can be quite confident that the bears are going to be looking to spin the upcoming Fed news in a negative manner. Sooner or later, the central bank is going to cross the hawkish threshold and cause some market pressure, but that has been the bears' expectation for years now and they have been dead wrong.
This morning we're seeing a few mixed earnings reports, and some economic news out of Europe, but it is shaping up to be a quiet day as we await some news form the Fed. Stay with the trend, but be vigilant, and make sure you don't let good trades go bad.