The bulls managed a solid bounce and a good close. It was well anticipated and that helped to gain some traction as the day continued. Breadth was solid at about 3600 gainers to 2250 losers and biotechnology stocks led the chart.
The biggest positive today was that there was some pretty good action in momentum stocks again. In addition, Alibaba (BABA) finally bounced after trading straight down since its IPO, and Cyber-Ark Software (CYBR), which started traded today, was red hot. The speculative interest was out there and that tends to feed on itself.
As I've mentioned, the morning the pattern this year has been for the first bounce after a breakdown to fail. The bears are aware of that, which attracted some short selling during the day. The strong finish likely scared some of them away, but they are going to be anxious to pressure this market again.
The bulls, of course, are already thinking about another V-shaped bounce that frustrates both the bears and underinvested bulls who haven't jumped back in fast enough. There was some hesitancy today to embrace this bounce, but that may be a good thing.
We are still in the midst of one of the seasonally weakest times of the year. There isn't much news flow as we await third-quarter earnings. Watch the momentum names -- they will be the best indicator of overall market health.
Have a good evening. I'll see you tomorrow.
Sept. 24, 2014 | 1:55 PM EDT
Set Up for the Developing Market Bounce
- But it is premature to be too trusting.
The much anticipated bounce finally developed, but the bears seem confident about shorting it. The tendency toward V-shaped bounces has made the bears nervous, but the last three corrections in this market had seen failed bounces before the V-shaped move kicked in.
Momentum names like Chipotle Mexican Grill (CMG), GoPro (GPRO) and Baidu (BIDU) are giving traders confidence. We also have CyberArk Software (CYBR), a hot IPO that is attracting aggressive speculation. Pockets of strong action is what you want to see during a turn, but it is still fairly narrow.
I continue to think Alibaba (BABA) will eventually gain momentum, but it is trading similar to Twitter (TWTR) following its IPO. Twitter didn't do anything for a couple weeks, but it nearly doubled in the next month. Alibaba has a far bigger market cap, which will make it harder to move, but it looks like a parallel situation going into the September earnings report.
There is better action, but I continue to do very little as most of the setups still need work. If you want to play, you have to keep time frames short until there is greater clarity. This bounce is looking OK, but it is premature to be too trusting.
SEP 24, 2014 | 10:38 AM EDT
Bulls Having Hard Time Generating Bounce
- Traders are aware market is oversold and pushing for a bounce.
The bulls are trying, but so far they are having a hard time generating much of a bounce. Breadth is running slightly negative but there is some action in a few momentum names like GoPro (GPRO), Twitter (TWTR), Vertex Pharmaceuticals (VRTX) and Palo Alto Networks (PANW). As I discussed this morning, it is a good sign to see that sort of speculative action as it indicates that traders are still aggressive and anxious to put cash to work. There are always a few stocks doing well even in a bad market but this action in momentum is broad enough to be more than just random.
Traders are very aware that the market is oversold and they are pushing for the bounce. But after a couple days of losses they are not likely to stick around if things don't pick up. The mindset is to jump in once there is some strength rather than try to anticipate the movement.
I continue to do very little. I have small positions in a few names but they are mainly intended to keep my attention for future additions. At this point I'm more concerned about failed bounces than sustained upside.
I'm still looking for some sort of oversold bounce to kick in today but it may have a limited lifespan.
Sept. 24, 2014 | 8:08 AM EDT
Eyes Peeled for That Pattern
- Let's see if the bounce-back plays out yet again.
To understand is to perceive patterns. --Isaiah Berlin
After three days of steady selling, the market is in position for an oversold bounce, but the more important question to consider is whether the correction is over. Market players have consistently enjoyed quick and easy recoveries after brief periods of weakness, but with the Federal Reserve slowly becoming more hawkish, there are concerns that conditions are changing and that it might not be so easy for the market to keep bouncing back so quickly.
Overnight, some dovish comments from central bankers in Europe and China helped to stabilize things, but they are no longer providing the sort of fuel that had previously led to so many "V"-shaped market bounces. There is plenty of cheap cash, and a high level of liquidity, but the mood has slowly been shifting and market players are no longer as sanguine as they had been before.
One good sign yesterday was that there was some interest in a few key big-cap momentum names such as Facebook (FB), Twitter (TWTR) and GoPro (GPRO). It was quite narrow, and it wasn't that strong, but market players were obviously looking for some safe havens and were comfortable enough to seek out some momentum favorites rather than value plays. That sort of speculation is key to a strong market, and we will have to watch closely for it to expand.
So far in 2014 we have seen three broad-market dips. One was in early January, one came in April and one materialized in August. In all three cases we saw one big failed bounce before the market found support and moved to new highs. There were a couple days of poor action, such as what we just saw this week, and then the market would bounce for a couple sessions before it would roll over again. This second decline almost immediately set up the market for the standard "V"-shaped bounce.
If the pattern plays out for a fourth time this year, we should see a bounce starting today, and it should continue for a couple days before the market takes another hit next week. That hit would scare out the overly optimistic bulls and set up the indices for a run of positive days.
The market generally isn't that predictable, but this pattern has been very consistent. What would really roil the market would be a failure in that second bounce, but it is too early to worry about that right now. First we need to see what sort of bounce the market can put together, and then we'll need to watch and see whether it fails, as it had done the last three times.
At this point, if you are trading, you have to stick with very short time periods. The current market is not one for building big position trades. There is very limited upside momentum, and such momentum is what's needed to make position trades work.
We're seeing some bounce this morning, and things looks better overseas, but market players are going to be a bit skittish about jumping in too quickly. If the indices hold for a while, the buyers will start to step up and help to relieve the oversold conditions.
Stay on your toes. This is not an easy market, and the risks are high.