The senior indices had another solid day, as a rotation into financials drove the buyers. Small-caps lagged again, and momentum names were a bit mixed.
The indices are rather misleading: there were only 189 new highs on the New York Stock Exchange and Nasdaq combined, and there were 142 new lows. That is a low number of new highs and quite a few new lows, possibly due to the weak action in small caps. Small-caps aren't making new highs, but enough large-caps are moving up to keep the indices at all-time highs.
It's not a particularly easy trading environment for stock pickers. It is very easy to be in the wrong stocks, and if you make a mistake, you aren't bailed out.
Tomorrow, the massive Alibaba IPO will shake things up. The coverage will be overkill, and lots of folks will be looking to roll the dice on it once it starts to trade. No one wants another Facebook (FB) debacle, and there will be an effort to create a positive buzz. The more important question will be whether the event is a catalyst for selling in the broader market. Given the nature of this market, I wouldn't be too quick to bet on it.
Have a good evening. I'll see you tomorrow.
Sept. 18, 2014 | 2:00 PM EDT
Trading Is Still Difficult in This Market
- Action is narrow and small-caps are choppy.
There is plenty of green on the screens and we have some lively action in a few momentum names like Baidu (BIDU), Ambarella (AMBA) and Tesla (TSLA). However, the indices have again flat-lined intraday, and the pockets of action remain quite narrow. I hear traders grumbling about choppy action in small-cap stocks that are difficult to trade.
Tomorrow, the business media will talk about nothing except the Alibaba IPO. This event marks a market top, in a manner that is almost too obvious. If it is really sucking up the liquidity, as the bulls had claimed, this IPO may not be good for the broader market.
I'm feeling a bit irritated today, since not much of my trading is working. The cure for that is to just keep on digging and see what happens. I am not feeling a strong bullish bias despite generally good behavior.
Sept. 18, 2014 | 1:55 PM EDT
Unconvincing Action
- I'm concerned we could see an intraday reversal.
The major market indices are acting well, and breadth is approaching 2-to-1 positive, but the action in individual stocks is fairly muted -- it's lacking momentum, even though there is quite a bit of green. We have solar energy and biotechnology leading again, and Tesla (TSLA), Baidu (BIDU) and some of the other momentum favorites are acting well. However, we aren't seeing any chasing.
I have to admit, my gut feel about the market is a bit negative due to the narrowness of the action, but I'm still looking for buys. This market has a habit of running over skeptics following the Federal Open Market Committee (FOMC) meetings, and it is showing signs of doing just that once again.
Solar-energy names are active, and I'm adding to my positions in Trina Solar (TSL) and Canadian Solar (CSIQ). I've also taken small tracking positions in Tarena (TEDU) and Star Bulk Carriers (SBLK), whose stocks have been slammed recently but which still have very attractive numbers. While the charts remain poor, I want to keep an eye on them to see if they can recover.
I don't find the action very convincing, and I am concerned we could see an intraday reversal, so I'm staying very vigilant and am prepared to exit quickly if the market starts to falter. I try not to anticipate weakness, but a few things are bothersome right now.
Sept. 18, 2014 | 8:42 AM EDT
Markets Back to Normal After Fed Yawned
- Expect a good market open today.
For every complex problem there is an answer that is clear, simple, and wrong. --H. L. Mencken
Once again, the bears were wrong about the Fed. The pessimistic hope has been that the market would start to react as raising interest rates became more inevitable. Higher rates may be inevitable, but it is still far enough down the road to prevent any rush for the exits.
Fed chief Janet Yellen avoided any major drama yesterday by keeping the "considerable time" language, but she did attempt to shift the emphasis from the calendar to economic data. Every new economic report we see now will be parsed for its potential to push the Fed toward higher rates, but for now, the Fed is back in its familiar place as a market positive.
Attention now turns to the Scottish independence vote and, more important, the giant Alibaba Group IPO. Trading in Alibaba tomorrow will have a major impact on the tone of the market. Expectations are quite high, and it has the potential to create some positive sympathy. If you had listened to the bulls early this week, the selloff in the market was due to raising funds for Alibaba, so there apparently isn't much liquidity out there to drive things higher, but there seems to be little evidence of that. There is still plenty of cash out there, and while Alibaba is going to suck some of it, it is unlikely that there isn't more to come with interest rates still hovering around zero.
The market has done a pretty nice job of recovering from the flurry of selling on Monday, but there is still some lingering damage. Investor's Business Daily has declared that the uptrend is under pressure due to the high level of technical distribution days when volume ran higher. In addition, small-caps continue to substantially lag, and the hot momentum has narrowed considerably.
Obviously, with the Dow Jones Industrial Average and S&P 500 hitting new all-time highs, it's a bit illogical to be overly bearish, but there are some problems in the underlying action that need to be solved. What we need to do is to stay focused on key momentum stocks and on the action in the small-cap indices. If they can confirm strength in the senior indices, then the uptrend will no longer be under pressure.
The focus on the Alibaba IPO is likely to keep a bid under the market today, as hopes are high for strong trading. However, the bears will be focusing on the Fed again and on how rates will eventually go up. That argument isn't having much impact, but you can bet that when we do have some weakness, the headlines will attribute it to Fed worries.
We have a good open on the way. The bears are being squeezed and the underinvested bulls are chasing. In other words, we are back to normal.
