Sneaky strength surprised market players today. Many folks have been treading water as they await the Fed, but after a mild open the indices kept trending upward and the anxiety over being left behind began to build. The buyers continued to chase things up most of the day before slight selling at the close. Breadth was very good at better than 2-to-1 positive.
A number of pundits attributed the move to anticipating that the Fed wouldn't hike on Thursday. It isn't clear if that is even what the market really wants. What is much more likely is that the move today was technically and computer-driven, and it had nothing to do with the Fed.
Although it was a solid day I'm not hearing any talk of V-shaped moves or straight-up action. Most market players seem to be anticipating big swings as the Fed news is digested. There isn't a very high level of trust in sustained momentum but that is what can keep things running for a while.
The bears were trapped this morning but the action today is a good potential trap for those who are too bullish. It is very likely that the market is going to experience mixed emotions before the Fed news in on Thursday. We had good trading but the overall market remains in a trading range.
Have a good evening. I'll see you tomorrow.
Sept. 15, 2015 | 1:36 PM EDT
Don't Listen to the Fed Deniers
- Even if the Fed decision is a non-event, it is going to produce a market reaction.
We have enough green on the screens to make the bulls feel good, but doubts are rising about how well this market can hold into the Fed's interest-rate decision. This sort of action sucks in bored buyers who don't want to miss out. It is an ideal setup for a "bull trap," and if the close is weak, it will have been sprung.
The key to dealing with this sort of action is not to hurry to declare a trend change. We are still in a very wide choppy range and there is no reason to expect it to be resolved prior to the Fed news.
Some folks are trying to tell us that the Fed isn't that important; they are wrong. There are too many market players sitting on their hands waiting for the decision before making any moves. Maybe the Fed will be a non-event, but it is going to produce a reaction no matter what because it will reduce some level of uncertainty.
I continue to dink around with small trades, primarily biotechnology, but they are all short term. I see no reason to held major exposure into the news events. Exelixis (EXEL), which I've mentioned a number of times, is a good example of the sort of trade I'm looking at. It is perking up and testing the upper end of its trading range. It isn't a fast move but it is liquid and can be traded in a very short timeframe.
Sept. 15, 2015 | 10:44 AM EDT
Just Dinking Around Ahead of the Fed
- It's no big surprise that the action is dull.
Market breadth is running about 3-to-2 positive with some green in the indices, but mostly it is just random noise. There are minor gains in oil, chips and biotechnology while retail, precious metals and bonds are weak. The momentum screen is a bit better than even with a few bouncers such as Google (GOOGL), but no real action to speak of.
It's no big surprise that the action is dull. We are sitting in the waiting room looking through four-year-old copies of Sports Illustrated while we wait for Fed chief Janet Yellen to go to work. There is some "boredom trading" taking place, and the machines are pushing the indices up as write. You simply can't read anything meaningful into the action, but you may be able to pick of a few things if you stay short-term.
I'm doing what I call "dinking around" -- making small, quick trades that I don't plan on holding for long. The best candidates continue to be the small biotechnology names: Inotek Pharmaceuticals (ITEK), Lexicon Pharmaceuticals (LXRX), Lion Biotechnologies (LBIO), Trevena (TRVN) and others.
I added to a position in Ixia (XXIA), which has a long base, and I will continue to dig for a few more quick plays. There is no reason to expect momentum in either direction, which means timeframes have to be short and trades managed tightly.
Sept. 15, 2015 | 7:03 AM EDT
In This Market, Patience Is What You Need Most
- There isn't much to do before the Fed decides on interest rates.
"Patience is not simply the ability to wait -- it's how we behave while we're waiting".
The market is stuck in a holding pattern and there is little we can do but sit and wait until the FOMC interest rate announcement on Thursday afternoon. In the meanwhile, we are going to see endless articles predicting, with great certainty, what the Fed will do. There is a slight consensus that no hike will occur, but whether that results in a great market celebration is going to be the big issue.
Rather than try to anticipate how events unfold, the prudent trader stays patient and is prepared to react rather than anticipate. Betting on news events is gambling. Trading the reaction to news is speculation, and that means having the odds in your favor.
Far too many people approach the stock market like it's a casino in Las Vegas. They place their bet and roll the dice, but what makes it worse is that they like to believe that they have an edge because of their superior insight into future events. They are right once in a while, which is what keeps them playing the guessing game, but it is tantamount to betting on a coin flip in many cases.
More sophisticated investors and traders are looking for a real edge. They know they don't have much of one when it comes to things like betting on earnings reports or economic news. The edge comes in playing the reaction after the news unfolds. Fading strength, buying weakness, looking for sector plays or any number of other strategies will reduce risk and provide a good payoff.
The biggest problem for many traders is that they grow impatient in front of news events. We read endless stories trying to predict what the Fed is going to do and the ramifications, and it is human nature to join the guessing game. There is nothing wrong with indulging that inclination, but the important thing is to make sure you have a clear strategy and aren't just placing bets and spinning the wheel.
My strategy for the next couple days is quite simple. I don't place big bets on the outcome or the reaction on Thursday afternoon. I wait for the news and trade it as it develops. The reaction will take time to unfold and that will provide plenty of opportunities. I need to be prepared, and will have a list of stocks to trade, but I don't do much with them until we have the news.
In the meanwhile, I focus on some shorter-term traders. Trevena (TRVN), my Stock of the Week, for example, worked well yesterday and I see a number of small biotechnology stocks that are trading well. If I can knock out some trades in the next couple days and move into more cash in front of the Fed, I'll feel that I am well positioned.
This doesn't make for a very exciting market right now and the speculation over the Fed is downright tedious at times, but it is the nature of the market beast. We are in that part of the cycle where we have to wait and see what develops. Hopefully a stronger trend emerges and we have the ability to be more aggressive, but patience is what we need right now.
We have a slightly positive tone in very early trading. Europe was up a bit despite continued pressures on China. There is little energy and no reason to believe that early indications will hold.