With a very important jobs report due Friday morning, there is increased risk in the market -- but no one seems too worried. There was a sharp pullback after morning strength, but the dip buyers showed up and pushed back to the highs in the afternoon. I was looking for another dip into the close but it did not materialize.
While the indices were close to flat, breadth was slightly soft. Big-cap technology names outperformed with the FATMAN group showing relative strength. Weakness in biotechnology and semiconductors put a damper on the speculative group. Once again there were a large number of blowups on the screens with names like Valeant (VRX) and Lannett (LCI) in the forefront. We've had a steady stream of disaster recently, but it really hasn't hurt sentiment much.
Overall, it turned out to be a mixed day without much significance. If anything, it was positive as we need a bit more consolidation, but the market is going to dance to the jobs news in the morning. The charts aren't much of a help in telling us what is going to happen.
A month ago the market roared higher on a very poor jobs report. It is unlikely that bad news will be greeted with such zeal once again. We'll see how things develop in the morning and then we'll makes moves. There is no reason to bet an event that is so uncertain.
Have a good evening. I'll see you tomorrow.
Nov. 5, 2015 | 1:38 PM EST
Stocks Whipsaw on a Volatile Day
- Wall Street fell early on, but equities are now back to near flat.
We've had a good bout of intraday volatility so far today. The big-cap FATMAN names -- Facebook (FB), Amazon (AMZN), Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOG) and Netflix (NFLX) -- were downright frothy this morning and we had a pretty vicious reverse. But then we found support and worked right back up to the session's early highs.
Breadth is still running slightly negative, but there's obviously some good underlying support.
The big question now is whether we can continue to run higher into the close with the very important U.S. October jobs report due out at 8:30 a.m. ET tomorrow.
The September jobs report served as a major catalyst for the big run-up that stocks saw over the past month, and the October version should be a market mover no matter what it says.
But I suspect there will be some inclination among players later today to stand aside in front of this report, as no one seems to know what the market really wants any more. Do we want a strong report that will push the Federal Reserve to hike interest rates in December, or do we want a weak report that will "delay liftoff"?
A month ago, stocks had just sold off because the market was disappointed that the Fed wasn't more hawkish. But then we rallied after lousy September jobs news forced the central bank to be more dovish. Everything is about as clear as mud, and it's likely that we'll be whipped around a bit tomorrow.
I'm looking to play a pullback in the indices this afternoon using the ProShares UltraShort Russell 2000 ETF (TWM). But I'm also looking for some long exposure in individual names. I started some RetailMeNot (SALE) today, and I'm remounting some Energy Focus Inc. (EFOI) in the mid-$16s.
Nov. 5, 2015 | 10:45 AM EST
'FATMAN' Continues to Lead the Fray
- Facebook and other tech names dominate as market breadth narrows.
Players were very focused last week on the fact that a small group of big-cap technology stocks were leading the market, with small caps lagging. But that reversed sharply on Monday and Tuesday as small caps jumped into the lead, catching many players flat-footed as it looked like the market was finally broadening out.
Well, we've reverted back to narrow, big-cap leadership this morning. The small caps are once again lagging as the FATMAN group -- Facebook (FB), Amazon (AMZN), Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOG) and Netflix (NFLX) -- leads the charge. Those stocks look almost frothy, but if you want "in" in this market, where else are you going to go?
One clear indication of the market's narrowness is the fact that we have less than a 100 stocks making 12-month highs while there are almost as many making 12-month lows. That's definitely not what you'd expect to see in an uptrending market with broad momentum.
The great difficulty we have at the moment is that the extremely important U.S. jobs news is due out tomorrow morning. That's the same indicator that caused the market to blast off to the upside a month ago, when it came in much lower than expected and shut up a hawkish-sounding Federal Reserve.
I have no idea what tomorrow's numbers will show, but you can bet we're going to see a sharp market move in response.
So, it seems like it's prudent to lock in some gains today and wait to see how things develop tomorrow -- that's what I'm doing. I also took some additional shares in the ProShares UltraShort Russell 2000 ETF (TWM) for a quick trade.
Nov. 5, 2015 | 7:36 AM EST
The FATMAN Leadership Is Positive
- The mood is good right now, despite worries about the Fed.
"Winning is not a sometime thing; it's an all time thing. You don't win once in a while, you don't do things right once in a while, you do them right all the time. Winning is habit. Unfortunately, so is losing."
-- Vince Lombardi
In a perfect world, the market should uptrend for long periods of time in a stair step pattern. Following a surge, we should pull back slightly and rest, as those with shorter timeframes exit and new buyers step in. This prevents the market from becoming overbought and keeps sentiment from becoming too frothy.
Over the last six years, we have had plenty of strong uptrends, but they have often been V-shaped. We go straight up and leave even the very optimistic bulls in the dust as they struggle to keep pace. The bears consistently add further fuel, as they are endless squeezed.
Many are so unused to the stair step pattern these days that they often mistake a pause or consolidation as the start of a major reversal. The bears are so anxious to call a top, that even minor weakness is viewed as the canary in the coal mine that is indicating that the end is near.
While the move from the lousy September jobs report has been very V-ish, a pause day like yesterday is exactly what is needed to keep it going. There is nothing overly negative about the technical condition of this market right now. We are moving higher with good momentum, and cutting through overhead resistance levels without any real effort.
Another positive is that the big cap technology names are leading the charge. Good earnings last night from Action Alerts PLUS portfolio name Facebook (FB) are helping sentiment and the stocks which I have dubbed FATMAN -- Facebook, Amazon.com (AMZN), Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOGL),Netflix (NFLX) -- are providing leadership.
One other positive yesterday was that we actually had relative strength in small caps. There was speculative interest in biotechnology, oils and a number of the smaller stock. That was what was missing for much of the recent rally, and it is a big improvement to have the market broaden.
So that is where we stand at the moment. We have an uptrend, good momentum, big cap leadership and some better action in speculative names. If you are a trend follower, you simply stick with that trend.
Of course, a market in this position attracts all sorts of bears that are happy to tell us why we are doomed. They see disaster lurking and they are seeking the glory of being the person that predicts it the moment it occurs.
It is possible that we could fall apart, but why don't we just wait and see how things develop? Keep in mind that we have the very important jobs report in the morning and the chatter over what the Fed is going to do next is going to grow very loud. That is a potential catalyst for a reverse, but right now the bulls have the momentum and that is the thing that matters most.
We have a positive open on the way and the mood is good.