The senior indices ended with slight losses but breadth was positive and small-caps exhibited some relative strength. It was rather slow day with light volume and limited pockets of momentum, but it was healthy consolidation and there wasn't anything overtly negative about the action.
Of course, the bears are quick to seize on action like this as the beginning of a topping process, but that is just hopeful thinking by the pessimists. There just isn't real selling or distribution taking place. When we do dip, like we did this afternoon, the dip buyers quickly show up. The time to be more worried about this market is when the selling accelerates into the close and we finish at the lows. That simply is not occurring.
The biggest negative is that we still aren't seeing much in the way of stocks hitting new 12-month highs. We have a bit more than 150, which is light for a market that is hovering so close to its all-time highs. The big-cap technology names are still holding well, but the sort of strength you'd expect to see in a market that is trending steadily and close to highs just isn't there. That has been the challenge for fund managers all year and is why so many are underperforming.
It is very easy to make a bear case against this market, but the price action just isn't all that bad. Yes, it is thin and narrow, but there isn't any major downside action.
It may not be a wild celebration of positive action, sticking with the upward trend is the only alternative.
Have a good evening. I'll see you tomorrow.
Nov. 23, 2015 | 1:23 PM ET
No Fighting the Positive Price Action
- · This sort of action favors sticking with trades.
The logical thing for this market to do is to consolidate or pull back after the big move upward. Of course using logic to navigate this market has been a disaster unless you cultivate a very contrary mindset. After last week's action, it makes great sense that some profit taking would occur, but the contrarians would assure that such thinking is too obvious and the more likely course is even more upside. The fact that we have tepid volume and no real positive news flow just makes it more likely.
That is where we stand now. Breadth has improved from early levels to about 3,700 gainers to 2,100 decliners. There isn't a lot of strong momentum but there is plenty of green. We still only have about 135 stocks making new highs, so it is not a great market for heavy duty chasing but there is no fighting the positive price action.
If you are intent on trying to catch a turning point in this action the most important thing is not to anticipate but to wait for actual price weakness to occur. In this sort of market, we have buyers on strength and sellers on weakness and right now there isn't any real weakness.
Many traders root for normal downside volatility in a market like this, which makes it easier to make entries and exits. This sort of action favors sticking with trades, and the folks that are too anxious to make moves will often find themselves on the sidelines with lots of cash.
I'm going to keep digging for new entries but what I'd really prefer to do is catch a reversal. I have learned over the years, though, that just because I would like to do something and it seems logical, that doesn't mean the market will cooperate.
Nov 23, 2015 | 10:41 AM EST
A Sloppy and Inconsistent Market
- The only choice is to look for things to buy, so that is what I'm doing.
The market week is off to a sloppy and inconsistent start. Breadth is very close to even and movement is very random. There's relative strength in biotechnology, which remains the favorite speculative group, while precious metals, oil and semiconductors struggle. Big-cap momentum names are also well mixed, with Amazon (AMZN) leading.
Last week's illogical action has helped to produce good underlying support. The market players caught by the positive reaction to a major terrorism attack are trying to find ways to make up relative performance. Obviously shorting the market isn't working so they either have to aggressively buy dips or chase momentum. They may not feel that it makes sense but arguing with the price action isn't working.
It doesn't make much sense that the market keeps running, but the market isn't asking my opinion. Trying to impose your own particular views of what the market should do isn't a workable strategy. The only choice is to look for things to buy, so that is what I'm doing. The continuation of last week's rally continues and the main reason is how many people that believe the action makes no sense.
I added to a position in DepoMed (DEPO), which I mentioned last week. Technically, the chart there isn't very good but I believe that the cancellation of the HZNP takeover bid is a positive and that the market is starting to recognize that fact.
A couple of other stocks I'm watching are MaxLinear (MXL) and Achillion Pharmaceuticals (ACHN), but both need more volume and more momentum to entice me to buy more.
Nov 23, 2015 | 7:42 AM EST
The Indices Give Bulls the Advantage
- However, stock picking is really challenging.
"You must remember, my dear lady, the most important rule of any successful illusion: first, the people must want tobelieve in it."
― Libba Bray
The market's positive reaction to the worst terrorist event in years caught many market players by surprise last week, but it is a stronger dollar this morning that is causing pressure. The action last week was a classic example of how computers, high frequency trading, central bankers and other structural factors drive the market to a much greater degree than simple news headlines.
There is absolutely no logical reason why news of a terrorist event should cause the market to rally, but this market is no longer just a reflection of investor psychology. While greed and fear still drive the action, it goes much deeper than just an ordinary correlation between news headlines and market movement. The market is now focused on trading the reaction to the news, rather than just the news itself.
While terrorism will continue to be in the headlines again, this week the focus of the market is shifting to the upcoming Fed meeting and the great likelihood of an interest rate hike. Many market players are scratching their heads over the apparent zeal of many Fed members to raise rates, but despite world-wide economic and political issues, it appears highly likely.
This morning, the market is again showing how much it is anticipating such a hike by strength in the dollar. This is causing strong pressure on oil and commodities, which are already weak due to weakness in Asian and European economies.
It is an odd mix, with obvious weakness in many economies around the world, but a Fed that seems determined to raise interest rates. There doesn't seem to be any really compelling reason for such a move, but the market is resigned to the fact and the dollar is clear evidence that it is very likely that the Fed will hike at the meeting on Dec. 16-17.
Last week's market strength caught many folks by surprise, and that is reflected in the charts. We have the major indices back above key moving averages and close to testing some resistance at all-time highs but, once again, the market was fairly narrow and driven primarily by big cap liquid names such as those that comprise the FATMAN acronym. Action Alerts PLUS portfolio name Facebook (FB) is part of the group, and so is Growth Seeker's Amazon.com (AMZN). The other components are Tesla (TSLA), Microsoft (MSFT), Alphabet (GOOGL) and Netflix (NFLX).
The small cap indices bounced as well last week, but are still far from their June 2015 highs and never even made it back that close to the highs of earlier in the month of November. The level of new highs is still quite contained, with just about 160 or so on Friday.
This narrowness has been the story of the market all year. The media keeps celebrating how well the senior indices are doing, but if you aren't highly selective and concentrated in the right stocks, you are underperforming. In fact, it has been a brutal year for many big funds that have failed to keep pace, because they aren't in the small handful of big cap stocks that have driven the indices.
So we have illogical action coupled with very narrow action. That is quite a challenge for traders, and with so many of them underinvested as a result we have quite a bit of underlying support and chasing.
Overall, the indices give the bulls the advantage, but stock picking is quite challenging, which is why so much money keeps flowing into the FATMAN names. Seasonality favors the bulls this week, but it is tricky as can be out there.
We have shaken off some of the early weakness, as oil is bouncing back.