Despite some intraday volatility, the bulls managed some decent action. The dip buyers showed up immediately after some early weakness and pushed hard enough to turn things positive and incite a little short squeeze.
Unfortunately for the bulls, some news in the biotechnology sector upset the momentum, but stocks regained their footing and closed fairly well. It wasn't a big day of gains, but given the market conditions, the bulls were steadfast.
Breadth finished negative, which was due primarily to pressure on oil, gold and commodities. Biotechnology was all over the place, but after a bit of drama it finished in the lead. Chips started strong but faded and retail managed to hold steady. The momentum names were mixed, but the FANG quartet -- Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google (GOOGL) -- plus Apple (AAPL) put on a good show for the bulls. (Facebook, Google and Apple are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
The problem for the bears is that this market is staying sticky to the upside. The negative arguments just aren't having any real impact. On the other hand, the slight panic on some irrelevant news tells us market players are skittish. We could see a quick drop on the wrong sort of bad headline, but the bears seem to be over-anticipating such an event.
The key right now is that there is underlying support. We may be a bit extended, but we aren't seeing any real downside pressure. On the contrary, the buyers showed up quickly this morning on minor weakness. It may not feel like a roaring bull market and the negatives are obvious, but we are holding up well and it doesn't make much sense to fight that fact.
Have a good evening. I'll see you tomorrow.
Oct. 19, 2015 | 1:59 PM EDT
Market Dives With Bluebird
- · This sort of action is a symptom of a market with limited confidence.
The market was plugging along nicely and was even showing signs of squeezing the bears, but one small piece of irrelevant news hit a biotechnology stock and that turned the tide. TheStreet's Adam Feuerstein posted the details of what seems to be meaningless news in Bluebird Bio (BLUE), but it killed the momentum in the biotechnology sector, which then spilled over into the broader market. We also have more drug pricing comments from politicians pandering for votes, this time it's Marco Rubio.
The Russell 2000 is not back to the lows of the day and the other indices are losing steam as well. Breadth has moved to 2,300 gainers to 3,350 decliners. The sector leadership this morning has now turned red.
This sort of action is a symptom of a market with limited confidence. There are willing buyers because there doesn't seem to be any good alternative but when there is suddenly an excuse to sell they hit the eject button quickly. Sentiment turns 180 degrees in a matter of minutes, which is what the bears keep anticipating.
This market is a bit extended and many market players are looking for the sidelines given even the slightest excuse. A close at the lows would embolden the bears but signs of underlying support are still out there.
Oct. 19, 2015 | 10:26 AM EDT
A Classic Example of Reflexive Buying
- There are good reasons to correct, but the bulls are holding up.
Once again, we have a very good example of reflexive buying. A gap-down open on Monday morning doesn't seem to scare anyone these days. It is an engraved invitation for dip buyers to do their thing. They jump in automatically, which squeezes the bears and draws in more underinvested bulls. It has been a pattern for a long time, and the example this morning is a classic.
Although we are off the lows and Nasdaq breadth is positive, there is some weakness in the NYSE because poor China economic news is weighing on oil and commodity stocks. Money is flowing out of oil and into biotechnology and chips. We have had this inverse relationship between oil and biotechnology for quite a while and todays it's biotechnology's turn to benefit from the algorithm.
Putting money to work continues to be quite challenging even if you do have a bullish bias. I added some MaxLinear (MXL) and I'm looking at Trevena (TRVN) and Esperion Therapeutics (ESPR) in the biotechnology sector. I sold down some Facebook (FB), which did wall as my Stock of the Week last week.
There are good reasons for this market to correct a bit, but the bulls are holding up well. If we take out the opening lows that will change the mood, but there is good support now.
Oct. 19, 2015 | 6:15 AM EDT
The Market Is Not Worried About the Negatives
- Underinvested bulls are looking for entry points.
"We all agree that pessimism is a mark of superior intellect."
--John Kenneth Galbraith
If you want to find reasons to be negative about the market, it isn't difficult. There is a long list of issues that the pessimists can dwell on, but the more important issue is whether or not the market cares. Do all the negatives out there matter?
The bear case here is quite clear. We have a sputtering economy, but a Fed that keeps hinting at potential interest rate hikes, earnings season is lackluster, China continues to struggle, oil and commodities are suffering due to weak demand, worries about another government shut-down are developing and many folks believe that after six years of upside we are finally due for a deep and prolonged correction.
Probably the most worrisome bearish argument is that the endless quantitative easing that has driven this market for so long is losing its punch. We could always count on our friendly bankers to find a way to supply more cheap cash that ultimately flows into the stock market and keeps it running.
There is more talk this morning about more quantitative easing in Europe and weak GDP reports in China and Japan are putting pressure on commodities and cause talking about new forms of government intervention. NY Fed President Dudley is on the wires saying that it is too early to consider rate hikes due to concerns about global economic growth.
It isn't a very pretty economic picture, but the technical and price action of the stock market is actually quite positive. The market is not dwelling on all those bearish arguments. On the contrary, it is celebrating the fact that there are so many negatives that it keeps central bankers around the world pushing to prop up the economy.
While the negative arguments right now seem to be quite substantial, they actually have been positive for the market. There is never a time when there isn't some very compelling and logical bearish argument. In fact pessimism almost always sounds more intellectual and persuasive than some giddy bullishness. Bulls are just not smart enough to really understand the depth of the issues we face.
While the bulls and bears argue back and forth about fundamental conditions, the astute trader stays focused on the only thing that really matters -- the price action. Ultimately, all that really matters in the market is whether the buyers are still trying to put money to work. If you look at the technical pattern of the market, that appears to be the case.
Ever since the terrible September jobs report, this market has been showing signs of improvement. The Fed has backed off from its talk about a rate hike this year, and the lousy economy in China and Europe is raising hopes of international QE. That is what is driving this market. Yes, maybe earnings don't seem so hot and valuations are questionable, but nothing supports the market better than the central bankers that control the world's money supply.
In the short term, we are slightly extended and could use some more consolidation and basing, but the technical picture isn't bad. We are above key support levels at 2000 of the S&P500 and 4800 of the Nasdaq. The bulls can afford to give a bit back. As long as we hold those levels and see signs of underlying support, the conditions for another push higher are in place.
Things can certainty change, but right now the market simply is not worried about all the negatives out there. It is acting in a positive manner, and underinvested bulls are looking for entry points. Until that price action changes, the bulls deserve our respect, if not our money.
We have some slight weakness in the early going, as commodities see pressure due to weak China GDP news. Earnings will quickly take center stage the next two weeks, and Fed members are likely to continue their useless babbling about the timing of rate hikes.