New-month buyers did a nice job kicking off November, but they grew tired this afternoon and we closed a bit weak. We still had good breadth and oil stocks in particular were quite good, but buyers were hesitant to keep pressing into the close.
I suspect that many folks, both bulls and bears, were caught by surprise the last couple days and really would prefer to see this market come in and reset a bit. On Friday we had terrible breadth and very narrow strength, which had the bears quite hopeful . However, the total reverse yesterday and this morning created substantial confusion.
I work very hard trying to not call tops and bottoms. Instead, I try to focus on individual positions and let them decide how long I am. Today I cut back quite a few positions simply because there were good gains that I wanted to protect. Many of the charts were a bit extended but not terribly so. If the market continues higher I will need to work extra hard to put money back to work, but it feels good to clear the decks once in a while and wait for the next market stage to develop.
We have Tesla (TSLA) helping out on the earnings front tonight and Facebook (FB) is coming up tomorrow. Jobs numbers at the end of the week are going to be the next major catalyst.
The bulls tell us the indices have momentum. The bears tell us that things are extended and we are due for a pullback. I respect the bulls but can't find enough inventory to hold to fully join their ranks.
Have a good evening. I'll see you tomorrow.
Nov. 3, 2015 | 1:28 PM EDT
Ring the Register!
- Take gains where you can and look for re-entry as things develop further.
The action started a bit slow this morning but support was solid and the dip buyers did their job again. Breadth is now positive with about 3,500 gainers to 2,200 decliners. Most notably the biotechnology sector turned and is adding to yesterday's gains as it shrugs off worries about more political attacks on drug pricing. Oil is also doing well, which usually doesn't occur in tandem with the biotechnology sector.
The momentum list is still lagging a bit with breadth just slightly positive, but the anticipatory bears are providing short squeeze fuel and keeping things running. Overall, it is a continuation of yesterday's action as the folks that were harboring doubts being pushed to join the party, even though they may not feel very confident.
The easy thing to do when we have action like this is to look for reasons why it won't continue. That is especially true if you are lagging or are underinvested. Quite often, the bulls are rooting for the market to rest because they can't keep pace. They don't necessarily want the market to collapse, they just want an opportunity to put money to work that feels more comfortable. Of course, if you aren't at least a bit uncomfortable with your trades, you probably aren't trying hard enough. The only trades that won't make you feel stressed are the ones that aren't big enough to matter.
Although I'm not sticking with the trend as best I can, I've been locking in gains where I have them. The biotechnology group in particular has had sizable gains and I'm happy to ring the register and look for re-entry as things develop further.
Don't forget we have the very important jobs report later this week and market players are going to start anticipating the reaction. Given that we are becoming a bit extended, there may be a greater inclination to take profits as the week progresses. Don't start trying to time a top, but if you have good gains, make sure you think about how to protect them.
Nov. 3, 2015 | 10:41 AM EST
Stocks Face Mixed Morning with Bad Breadth
- Decliners lead advancers, but look for some dip buyers.
The market is struggling to build on yesterday's surprise momentum. We have some underlying support so far, but breadth is running 2,300 gainers to 3,000 losers. The momentum list is lagging, and the only notable strength is in some oil-related names and a minor bounce in retail.
While the bears keep trying to anticipate a top after the big run in October, there isn't anything very negative about today's price action. We're simply seeing a little consolidation, and there are no signs that traders want to move to the sidelines. A close at the lows would be a bit worrisome, but right now this looks like routine churning.
Typically, action like what we saw yesterday helps to create stronger support. The folks that missed the move and want to put money to work will look to buy on dips. Many folks' strategies are not to chase, but to buy on some weakness. When they miss a move like yesterday's, they're more likely to buy shallower dips on subsequent days.
I'm still trying to put more cash to work. Esperion Therapeutics (ESPR) is on my radar screen, while Shark Technical Pick Dycom Industries (DY) is gaining momentum. RetailMeNot (SALE) is also of interest as it heads into a gap on the chart following a good earnings report.
Nov. 3, 2015 | 6:30 AM EST
Plenty of Dip Buyers Out There
- Markets like this don't just turn around and go straight down.
"The more things change, the more they are the same."
-- Alphonse Karr
Ever since the market low in March of 2009, the easiest mistake to make in the market has been to underestimate the strength of rallies. Time and again, we have moves that have lasted much longer and gone much further than many people felt was reasonable.
Expecting the market to act in accordance with our belief as to what is "reasonable" is not very good strategy, but it is understandable and has been a trap for many bears that can't help but focus on a long list of negatives. There has always been a grand and glorious bear case during the last six years. If you wanted to make a bear case, you easily could. The only problem was that the market didn't care.
Unquestionably, the rally of the six years was primary a product of central banker manipulation. The flood of cheap capital hasn't helped the economy very much, but it has been of great benefit to the stock market and a few other asset classes. There just haven't been many other places for this capital to go to, but the stock market.
Many market players believed that the big turn in the market would occur when the Fed started to wind down its quantitative easing program and begin raising rates. It certain makes sense that if the Fed drove the market up with cheap rates, then it would drive it back down when it started to raise rates.
That simple logic may seem compelling, but trying to apply it on a timely basis is impossible. The bears were confident that the breakdown in August was the beginning of the end of the six-year bull run. Fed members were making a number of hawkish comments, the unemployment numbers looked better on the surface, and it was pretty clear that the QE program hadn't really produced very good results. That spooked the market a bit, but a lousy September jobs report, continued weakness around the world, especially in China, and low oil and commodity prices pushed the Fed back into the corner.
While there is still much talk about how the Fed is going to "lift off" rates soon, the simple fact is that we are right back to the same conditions that have driven this market for six years. We have low interest rates and few alternatives to stocks. Chasing the market has worked, and if you focus on what can go wrong, then you miss out.
What works in this environment is to respect the price action and forget the macro arguments. Momentum begets momentum. The more we have, the more people want to buy this market. It requires some faith to be in tune with this market, but when we have a day like yesterday it is apparent that there are a lot of people that have not trusted the ability of the market to go higher. That is why so many were caught unprepared.
We have some slight weakness this morning as we await more earnings reports and the extremely important jobs report on Friday. The bulls have the advantage and there are plenty of dip buyers out there. The bears that keep looking for a sudden collapse may get some minor weakness, but markets like this don't just turn around and go straight down.