Once again the bears had the edge to start the day but were unable to gain much traction. The buyers regained confidence as the day progressed and we ended up with an OK good close. There wasn't any wild buying, but breadth turned positive and the underlying support looked very solid. The bears had a good opportunity at the open but weren't able to do anything with it.
What is most notable about the market right now is that the big picture news is mostly negative. We are contending with weak economic conditions around the world but the prospect of higher interest rates in the U.S. One of the reasons we may be holding up better than many would assume is because there is still some hope that the Fed will not raise rates in December. That doesn't sound very likely, but the doves certainly can make an argument for it given the abysmal numbers we have seen lately with the exception of one jobs report.
While the macro news does sound quite glum, the technical picture isn't bad at all. We've had a few days of rest after the big uptrend in October and another thrust higher is not out of question. The bears are anxious to believe that the slightest pullback is the start of a major reversal, but there really isn't anything to confirm that view. We are simply consolidating a bit and are holding support quite well. While the potential for a deeper rollover is there, the bears aren't doing much to make it happen.
I'm going to be out for a few days. Good luck and good trading. I'll see you again soon.
Nov. 10, 2015 | 10:30 AM EST
Big Picture Losing Focus
- Poor macro conditions but OK technical patterns.
The dip buyers are active after the weak open and have the indices back in positive territory. Breadth is running about even with a slight bounce in retail after a pounding yesterday. The FATMAN big-cap momentum names (FB, AMZN, TSLA, MSFT, GOOGL (Alphabet) and NFLX) are almost all red. Biotechnology and chips are leading to the downside and that is not a good sign.
As I discussed in my opening post, we have poor macro conditions but OK technical patterns. We are seeing that played out as there is still good underlying support, although the big picture news is not particularly positive.
I'm lightly invested with a few smaller positions. I also have some ProShares UltraShort Russell 2000 (TWM) and I will look to build that further as I expect more downside in the near term. Biotechnology name Trevena (TRVN) is down on uneventful earnings and I'm inclined to add to that position.
My mother has been suffering from Alzheimer's disease for a number of years and her journey is nearing an end. I'll be with my seven siblings in Michigan for a few days to honor her memory. Good luck.
Nov. 10, 2015 | 7:09 AM EST
Technically, It's Still a Bull Market
- But fundamentally, the bears are pulling ahead, so expect a negative open, this morning.
"In every life there is a turning point. A moment so tremendous, so sharp and clear that one feels as if one's been hit in the chest, all the breath knocked out, and one knows, absolutely knows without the merest hint of a shadow of a doubt that one's life will never be the same."
Is the market at a major turning point now that the Fed is about to hike interest rates for the first time since June 2006? That is the question we face as we digest the latest jobs news.
The very poor September jobs report, which was issued at the start of October, was a major turning point for the market. It kicked off one of the largest monthly gains for the indices in a number of years. The rational for the strength was simple: the Fed could not raise rates right away because the economy was just too weak.
The October jobs report was the complete opposite of the September news. It was strong enough to essentially guarantee a rate hike at the next FOMC meeting in December. The market's initial reaction to the news wasn't nearly as strong as the reaction we saw back in early October. We had strength in financials -- and small-caps actually did quite well. The bulls were hoping that the sudden shift back to a more-hawkish Fed was not going to derail the very strong rally that they had been enjoyed for over a month.
The big problem for the bulls is that there simply isn't any positive news, out there. Earnings season is mostly finished and, with the exception of a few big-cap technology names, was mostly uninspiring. Revenue growth was generally weak and guidance lackluster.
In addition to lackluster earnings, macroeconomic conditions are mixed around the world. There is still enough weakness in China and Europe to push central bankers to consider further forms of quantitative easing, but the trajectory of the economies is to the downside.
One of the consequences of a hawkish Fed coupled with weak international growth is that it is highly supportive of the dollar. U.S. goods become more expensive -- and that is a further headwind for multinationals that are already dealing with slow economies around the world.
A strong dollar, weak oil and the potential for higher interest rates are not conducive to an uptrending market. The simple fact is that we have quite a bit of bad news, out there, and market players are going to be hesitant to be too aggressive.
The bulls may not win the argument on a fundamental basis, but they do have a better case on a technical basis. The market had extremely strong momentum in October and the pullback yesterday (which was the worst since September) wasn't enough to change the trajectory of the trend. It can easily be argued that this was just some healthy selling and consolidation in the context of a market that is working steadily higher.
The bears are always quick to proclaim that disaster awaits after a bad day or two. They are always so anxious to tell us that their arguments do matter that they fail to give the market any room for some normal digestion.
Have we topped out? Should we be ready for more significant downside at this point? The lack of any positive news gives the bears an edge but the technical picture has not yet confirmed a more-bearish bias.
Certainly a little caution is in order, and it is always prudent to manage positions closely and to keep stops in place, but there is no reason yet to declare the uptrend finished.
We have a negative open on the way and not much news flow. Stay very selective with any new buying and watch for further proof that the recent uptrend may be coming to an end.