It was another win for the bulls, but the S&P 500 wasn't able to hold the 2,000 level that so many have been watching. Volume was unsurprisingly light, breadth was good and the bulls just kept on pressing.
We saw flat action intraday once again but, after a strong morning, it didn't much matter. The fact that selling doesn't pick up when the upside gains falter is a good indication of the underlying support. The dip-buyers are so anxious to buy that they never allow the market to dip.
It is difficult not to be a little concerned, given how the market has gone straight up for more than two weeks on declining volume. But these days that is a technical pattern that is more bullish than bearish. Extended markets just become more extended and the fuel is all those folks who are trying to apply very obvious logic.
The funny thing about this market is that even the bulls would like some weakness. When we do see a dip, don't expect it to last for long.
Have a good evening. I'll see you tomorrow.
Aug. 25, 2014 | 13:52 PM EDT
Fear of Being Left Out Persists
- But I'm looking for at least one brief selling squall this week.
Although the market has been strong for a couple weeks now we, have had a pattern of very listless intraday action after a strong start.
We consistently find support quite quickly and there isn't any aggressive selling, but we just go completely dead for several hours. That is often enough to shake out some of the weak bulls, but it has been a mistake to read anything into the intraday dullness.
The folks in the media are excited about record highs and the S&P 500 hitting the 2000 level, but that is an easy and convenient story when there isn't much news flow. What is moving stocks is fear of being left out rather than any specific news.
Keep in mind that this is typically the slowest week of the year and movement is going to be more random than usual. This week has had mixed results in recent years and I am looking for at least one brief selling squall to hit. Fortunately for the bulls, there are plenty of folks who would live to jump on a dip, so it is unlikely that any pullback will gain momentum.
We have some underperformance by small-caps again, but breadth is still positive and traders are creating some nice pockets of momentum. Even though this market is technically overbought that is of very little concern right now. The bears may see that as a contrary indicator, but the bulls call it being right.
August 25, 2014 | 10:51 AM ET
Easy Entries Are Scarce
- Putting cash to work is a struggle today.
Market players were anxious buyers this morning and gapped things up nicely. Breadth is approaching 3-to-1 positive and they are chasing quite a few momentum names. Biotechnology is leading the charge on take-over action and solar energy is also doing quite well. Select China names are still attracting momentum money but names such as Tesla (TSLA) and Puma Biotechnology (PBYI) that are really running.
The tendency of the market has been to go flat for a while after the strong open and we are seeing some signs of that today. But it is important to keep in mind that action like this creates a big supply of dip-buyers. Lots of folks are underinvested and don't like to chase, so they will jump on even minor pullbacks. That is why we are seeing so little downside volatility.
Once again the bears who were hoping that the Fed would be the catalyst for a market turn are on the wrong side of the market. There was nothing surprising out of Jackson Hole which would suggest that a "sell the news" response might occur but market players have been trained to buy Fed comments no matter what they may be.
An intraday reversal into red would push some bulls to take profits but right now there is just too much underlying support to worry much about that. The issue for most market players is finding stuff to buy rather than worrying about defense.
I have not done much new this morning. I am still holding Digital Ally (DGLY) , Pernix Therapeutics (PTX) , BioFuel Energy (BIOF) , Sky-mobi Limited (MOBI) and a number of other stocks I have mentioned recently. But putting cash to work is a struggle if you are looking for easy entries.
Aug. 25, 2013 | 07:57 AM EDT
Those Pathological Pessimists
- Some people just can't help themselves.
Pessimism leads to weakness, optimism to power. --William James
Although school has already started in many parts of the country, this is considered the last week of summer vacation, and typically we see very low trading volume over its duration. Volume has been declining for a while now, and it doesn't matter much to this market, which seems to have very good underlying support.
We are seeing another positive Monday morning open as the market digests the comments made at the Jackson Hole, Wyo., conference last week. Late Friday, European Central Bank President Mario Draghi, suggested that quantitative easing was coming to Europe amid growing fears of deflation. Of course, Federal Reserve chief Janet Yellen reiterated her generally dovish attitude, as well, and that is all the market needs to keep on running.
From a technical perspective, the market appears a bit tired, and it is extended on light volume. However, the mistake is to underestimate the underlying support. While things were a bit slow on Friday, as Janet Yellen's comments were well-anticipated, there were still plenty of dip-buyers out there looking for action.
In addition to the support we've seen, there has also been good speculative action in secondary stocks. There has been plenty of "hot money"-seeking action in various China-related names, and the big-cap momentum stocks have generally been outperforming.
The great temptation here is to start anticipating a pullback. There is no question that this market could use a rest, but it has consistently showed sustained strength that has surprised those who have been a bit cautious. The open this morning is already attracting skeptics who don't think it can be sustained.
The key strategic issue at this juncture is whether you stick with the momentum and the uptrend or whether you should start anticipating some weakness. In general, the better approach has been to stay with the trend and to only react when there is some actual price weakness. The anticipatory bears have been repeatedly chewed up and spit out by this market, but that doesn't seem to stop them. Some folks are pathologically unable to stop themselves from trying to time market tops. Even after a steady diet of losses they are unable to forego their pessimistic predictions. But that is what makes a market, and it is part of the reason we have seen such sustained momentum.
The tricky thing about trading this week is that it is going to be on light volume, but we seem to have an upbeat attitude. Keep in mind that markets at their highs don't just fall apart and go straight down. Sustained strength creates a supply of dip buyers, and these folks aren't going to go away easily, especially when their approach has worked so consistently for so long.
My strategy at this point is to not worry much about market timing and to stay focused on individual stock-picking. The big picture is positive, and there is no reason to look too hard for problems. When the individual stock picks stop working, that will be the time to be more cautious.
We are looking for a positive open, and quite often those gap-up opens to start the week lead to sustained strength.