A late bounce took a little of the sting out of the action but it was a solidly negative day for the market. It started with a small gap down but rather than the typical Monday morning buyers, steady selling set in for most of the day. Breadth was about 1,450 gainers to 4,400 decliners and even the momentum names struggled. There was slight outperformance in biotechnology and precious metals but there were few places for the bulls to hide.
The big question is was this just a pause after the huge run over the past five weeks or the start of a more aggressive reversal. The bears will argue that we have known for years that higher interest rates are going to be the thing that kills the market and we had a small taste of it today. They are gearing up for a push lower and they have plenty of ammunition to support them.
The bulls argue that there really isn't any reason to overreact. The market is entitle to a few days of rest after the big run it has enjoyed; this is just routine consolidation and it's a mistake to believe that a major change in character is taking place today.
I'm looking for the bears to press a bit more. There isn't much positive news and with earnings season now largely completed, the focus is on macro events, which are unlikely to excite buyers. This market has had a strong tendency to come back quite quickly but there are very strong headwinds blowing. Some caution is prudent at this point.
Have a good evening. I'll see you tomorrow.
Nov. 9, 2015 | 1:48 PM EST
The Bears Gain Momentum
- We'll see if there is any dip-buying interest as the day winds down.
It was a lousy jobs report a month ago that started a rip-roaring rally off the market lows. When it became clear that the Fed wasn't going to raise rates at the next meeting, buyers jumped in and kept on pushing.
The bulls wanted to believe that the reverse would not occur on a strong jobs report. They used a number of arguments to explain why the rally would keep going even if the Fed were likely to raise rates in December. Unfortunately for the optimists, the market is applying some basic logic. Good news is bad because the Fed will hike rates, and that is a negative.
There are times when the obvious works and that is what we have today. For six years the old saying about not fighting the Fed worked as it kept rates low and the market in an uptrend. Now we are seeing the reverse. It is as simple as that.
We'll see if there is any dip-buying interest as the day winds down, but there just aren't many positive catalysts out there. Underlying support is near, particularly around the 2060 level of the S&P 500, which is the 200-day simple moving average, but resistance didn't matter much on the way up and it is not likely to be that significant on the way down.
Mitek (MITK), which was today's Shark Technical Buy, is bucking the trend, but breadth is extremely poor. I'm looking to add to a position in ProShares UltraShort Russell 2000 (TWM) into the close. The bears have some momentum and I don't see any good reason to believe more downside is coming.
Nov. 9, 2015 | 10:48 AM EST
A Gloomy Market Morning
- There's been steady selling pressure all morning.
The weather outside my window is rainy and dark, and the market action feels similar. There's been steady selling pressure all morning and breadth is approaching 4-to-1 negative. There is a slight bounce in precious metals and a little relative strength in the FATMAN names, but it is a sea of red otherwise.
On Friday the market held up fairly well as money rotated into financials and market players felt better about having greater insight into the next move by the Fed. But after a little reflection, there is more doubt about the wisdom of raising rates when there still seem to be so many economic headwinds. With the market already a bit technically extended, a hawkish Fed is a good excuse for profit taking.
The market has been trending down steadily and that is triggering stops along the way. I've taken some ProShares UltraShort Russell 2000 (TWM) again and been dinking around with a few smaller trades in LendingTree (TREE), Mitek (MITK) and Trevena (TRVN).
TREE is my Stock of the Week on the theory that rising rates will push folks to hurry and apply for loans now.
Nov. 9, 2015 | 7:30 AM EST
The Market Is Pricing In Fed-Rate Clarity
- But watch if it produces a negative response, once the reality sinks in.
"Although our intellect always longs for clarity and certainty, our nature often finds uncertainty fascinating."
--Karl von Clausewitz
The much-better-than-expected October jobs report has set the stage for the Fed to hike interest rates at its next meeting on December 15 to 16. The market's reaction to this development was generally positive on Friday, as small-cap stocks and financials helped to push the indices higher. The question, now, is whether stocks can gain further momentum as this news sinks in.
The primary positive of the news on Friday is that we now have greatly clarity. Unless there is some very surprising economic development, we now know that the Fed will commence "lift-off" in about five weeks. Fed members have greatly confused the market recently, and the weak September jobs report had undermined the more-hawkish tone that Fed members had been taking.
With the uncertainty about the likelihood of a rate hike now greatly reduced, the market can discount the event and start pricing it in. This already started on Friday as financials took off -- and stocks that are affected by a stronger dollar reacted, as well.
While it is always helpful for the market to have greater clarity, the big problem is that there are still quite a few negatives out there. Many of the most troublesome issues, like lackluster earnings and slow GDP growth, have been partially ignored as we have focused on the Fed and interest rates. Many bears are absolutely convinced that the Fed is looking to hike rates for all the wrong reasons, and that the economy is actually falling back into a recession.
Obviously, the international economy remains problematic. China and Europe are still focused on finding various ways to stimulate their economies and there is concern that a more hawkish Fed could cause problems. The stronger dollar also has a host of repercussions, especially for multinationals.
The big issue we have to watch for now is whether, when the reality of potentially higher rates sinks in, it will produce a negative response. Increased clarity is always good, but when it becomes clear that we still have plenty of negatives, it may suppress continued momentum.
Technically, the bulls are not particularly worried right now. We've had a V-shaped move since the lousy September jobs news and have cut through some key resistance levels. Large-cap momentum names that I have dubbed FATMAN -- Facebook (FB), Amazon (AMZN), Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOG) and Netflix (NFLX) -- are leading the charge, and we even saw small-caps with good relative strength on Friday. Any way you look at it, we have pretty good technical action out there. It may not be easy to put cash to work, but there is no disputing the fact that the indices have positive momentum.
There are some peculiarities in the underlying action, such as the very negative breadth in the NYSE on Friday, while the Nasdaq did very well, but that is a function of the market trying to sort out the winners and losers that result from higher interest rates and a stronger dollar.
We have some reshuffling in leadership taking place that is going to confuse things a bit, but at the moment there isn't any great concern that a hike in December is a major negative. We have to watch to see if the mood shifts as that reality sinks in. The bears are asking why, if the prior weak jobs news produced a huge rally, should a strong report also be a bit positive. It is logically inconsistent, but that is just the nature of the market, at times.
We have some slight weakness in early going, as overseas markets start the week in negative territory, but Monday morning dip buyers are often lurking.
