The pattern of pathetic volume, fading intraday breadth and good gains by the indices continues. The Nasdaq is up 11 of the last 13 days and any concerns about overbought technical conditions on declining volume have been counterproductive.
What was most interesting about the action today was that small-caps outperformed and there was plenty of momentum chasing, although the S&P 500 closed at its low. Market players were acting, buying Twitter (TWTR), Hewlett-Packard (HPQ), Facebook (FB) and a number of high-beta names.
The air may be thin up here but the fear of being left out is driving buyers. Light volume can cut both ways, and right now it is a positive as it doesn't take much firepower for market players to keep the momentum going.
The media celebrate the fact that the S&P 500 closed a few pennies above 2,000. It is a minor milestone that some analyst have been anticipating and could be a catalyst for a little less bullishness now that the target has been hit.
You can easily overthink this market if you try, but the very simple thing that works is sticking with the trend. It may seem a little late to the party, but many thought the same thing last week.
Have a good evening. I'll see you tomorrow.
Aug. 26, 2014 | 1:28 PM EDT
Blame the ETFs
Why rallies are hated, not celebrated.
In the last few years market commentators have consistently characterized market rallies as being "hated" Obviously, that is a gross generalization, but there is no doubt that we seldom see the sort of euphoria that used to occur during strong markets before the Great Recession.
Why is that the case? If market players aren't excited about the current market action and a steady diet of new all-time highs, what will it take to change the mood?
The main reason we don't see the excitement we used to experience in the old days is that individual stock picking isn't celebrated in the same way. We still have crazy moves in stocks like Digital Ally (DGLY) or Tesla (TSLA), but stock picking has become less a focus, as the only thing that really matters now is that the indices continue to go straight up.
The focus on indices is partially a function of the growth in ETFs. In addition, there has been a push toward indexing as market timing has proven futile. Many folks have retirement accounts and 401(k)'s allocated to broad indices, therefore, they have no interest in individual stock picking. When indices are the main trading vehicle, it mutes action in individual stocks. It is tougher to pick stocks when they move in tandem, and that is what happens when you use ETFs.
The folks who tend to be the most bullish about the market are those who only look at indices. Traders of individual stocks may do well but they seldom seem to be as enthusiastic as they constantly deal with a market driven more by indices than individual characteristics of stocks.
As long as interest rates remain low and there are a few good investment alternatives to the stock market, the focus will stay on broad-based investment vehicles like index ETFs. That will undermine individual stock picking, and it is one of the main reasons that rallies are hated rather than celebrated. Traders of individual stocks need more volatility, and a market focused on indices just doesn't create as much of it.
Aug. 26, 2014 | 10:48 AM EDT
Potential for Pullbacks Increasing
- A dip could catch a few bulls who are pressing too hard right now.
We are seeing good breadth with better than three advancers to every two decliners, but the slowness of the trading is making the movement very random. The market still has a strong positive bias, but there is some sluggishness. You can sense that traders are ready to take some profits quickly if momentum cools off a bit more.
Biotechnology is leading again but gold has finally bounced and the big-cap momentum action is much more mixed. The better-than-expected consumer confidence number was initially sold but the market is still holding up well.
Traders are still aggressively trading "junk" names such as Digital Ally (DGLY), Kandi Technolgies (KNDI), China Finance Online (JRJC) and China HGS Real Estate (HGSH), which is a good sign as it means there is speculative interes. But we need that to broaden out again to keep this market running.
I'm dinking around with a few small trades as it just isn't possible to be very aggressive right now. There is nothing wrong with the market other than it being a bit extended on light volume. However, the potential for some pullbacks is increasing. We should see plenty of dip-buying support but a dip would likely catch a few bulls who are pressing too hard right now.
Aug. 26, 2014 | 08:20 AM EDT
Awfully Slow Out There
- In a market like this, don't get too hung up on timing.
Wisely, and slow. They stumble that run fast. --William Shakespeare
The week before Labor Day is supposed to be the slowest trading week of the year, and it sure is looking that way, given the limited news flow from individual companies. Still, the durable-goods and consumer confidence reports coming up, and that may help to move things around a bit.
The main focus in the news media is that the S&P 500 is poised to move through the 2000 level for the first time ever. In addition, there is some sniggering about Warren Buffett financing Burger King (BKW) in a tax-driven deal, given his comments in recent years that it is patriotic for the rich to pay more taxes. At least the folks on television will have something to talk about.
The market is going to be very slow for the rest of the week, and we simply have to be aware of that. The usual suspects will keep trying to anticipate a major market turn, but there really is no reason to look for anything dramatic at this point. Keep in mind that markets tend to be sticky at their high. They don't just suddenly reverse and go straight down. There is too much underlying support, and the first few dips will be bought simply because it is a strategy that works. Market tops are the product of a series of failed bounces, and so far we haven't seen any.
Despite the generally positive action in the major indices, I've been hearing complaints from traders who are seeing mixed results. They will nail a few good trades, but then give some back in a couple bad ones. Overall it is a good environment, but it isn't as simple or as easy as it looks.
In an environment like this, probably the most important thing you can do is to avoid getting too hung up on overall market timing. The market is likely due for some rest -- but trying to time some minor ups and downs is hardly worth the effort. We are probably better served staying focused on individual stock-picking. There are pockets of action, and traders are gravitating toward them and making them more pronounced, but there is no question that this market is just painfully slow right now.
A slightly positive open is setting up, and very little on the news wires. A lot of bored market players are looking for some minor pullbacks, but mainly it is looking like just slow, random movement.
