It was just one Russian pilot who was killed, but it was a good excuse for some market pressure. Of course, the fact that it was an obvious reason for selling is precisely why it didn't happen. The dip buyers showed up immediately and when they didn't crack, even after taking out the opening lows, there was no choice but to buy.
It was steady upside the rest of the day, but what was most notable was that we had some holiday spirit in the air. Market players were looking for hot action in small-caps and gunned a number of things with impunity. The shorts simply stand aside during this sort of action and the aggressive traders can get a bit carried away.
If you are trying to use logic to navigate this market you are going to have a very tough time. The news isn't bad or good. It is just a mechanism for trading volatility. You might think that all the terrorist activity around the world would be an issue for equities, but it is simply providing trading opportunities for folks who are looking to play short-term moves. There really is no such thing as "bad news" right now because there are buyers regardless.
The day before Thanksgiving is often a very good day for traders and they are likely to make it a self-fulfilling prophecy to some degree. Probably the best thing that could happen is if we had more bad news and a gap down. The most bullish thing we can have lately is a negative start.
If you are a logical person you have to be thinking that this market is due for a pullback. We will have a rough one sooner or later, but for now the price action remains positive and you fight at your peril.
Have a good evening. I'll see you tomorrow.
Nov. 24, 2015 | 1:20 PM EST
The Computer Games People Play
- You can bet a computer is behind a squeeze in anything that looks like a good technical short.
Once the market action demonstrates that macro news flow is totally irrelevant, it does not matter what the headlines are. Traders are intently focused on price action and how to best stay one step ahead of one another. We are trading other traders rather than the market or stocks. It is all about trying to guess what moves someone else might make and trying to stay a couple of steps ahead.
This sort of trading behavior isn't anything new, but the disconnect between news events and price action is at extreme levels. Part of it is caused by seasonality and another part of it is performance anxiety by funds that have had their worst year in a while. But in the shorter term, it is caused by high-frequency trading and computers that trade contrary to human emotions.
Even if you fully appreciate what is moving the market, the challenge is that it is very random and short term. That makes it more difficult to be aggressive when you have movement like this. You can bet that there is a computer lurking to cause a squeeze in anything that actually looks like a good technical short.
What happens when computers are playing these games is that the most obvious chart patterns tend not to work the way you expect. They may eventually move in the direction you hope but there are likely to be bouts of volatility big enough to shake you out if you have normal stops in place.
It is the nature of the beast these days and our job is to find a way to deal with it. It is not easy but there aren't any good alternatives if you want to knock out good trades.
Nov. 24, 2015 | 10:39 AM EST
And Here Are the Dip Buyers
- Let's see if they can push us into the green.
The dip buyers showed up like clockwork. It really doesn't matter what the news might be. If we gap down, the buyers show up. It is such a reliable pattern, that nothing really seems to scare away the bulls.
We haven't made it into positive territory, and breadth is running solidly in the red with about 2050 gainers to 3100 decliners, but the underlying support is stubborn.
Gold and oil are leading and we have some "holiday trading" in junk names like Aeterna Zentaris (AEZS) and Opexa Therapeutics (OPXA) taking place. The big cap momentum stuff is stumbling, with Google (GOOGL) and Amazon.com (AMZN) leading to the downside.
The key now is that we hold above the opening lows. If we test that level, it will trigger sell stops and bring in the bears that are really itching to catch some downside. They have been slapped around by the bulls lately and are anxious to press if there is any real weakness. At the moment, the support is pretty good, but it can dry up fast if upside progress sputters out.
I have a few smaller trades going, with names like MaxLinear (MXL) and Achillion Pharmaceuticals (ACHN). I'm inclined to add to a ProShares UltraShort Russell2000 (TWM) position over $37.25, but I'm staying patient and making sure the bears prove themselves before doing much with index plays.
Nov. 24, 2015 | 7:32 AM EDT
Just Wait for the Dip Buyers
- Even bad news is good news at the open.
"Once again, we come to the Holiday Season, a deeply religious time that each of us observes, in his own way, by going to the mall of his choice."
Market momentum slowed on Monday as volume contracted and market players start to look forward to the Thanksgiving break. We had a few stocks making big moves as holiday trading kicked in and breadth was positive due to relative strength in small caps, but it was a very quiet day with mixed action overall.
Quite often, the bears become overexcited on days of consolidation as they hope that it is the start of the pullback that they keep anticipating. The bears have been fighting this market ever since the Paris terrorist attacks, but they are convinced that sooner or later logic will return and we'll see the downside they are so convinced is going to occur at any time.
News that a Russian jet was shot down by Turkey hit the futures this morning, but you can bet the dip buyers are already making plans to jump in should we open soft. That strategy has worked so well for so long, it is automatic.
There really is no such thing as "bad news" at the open anymore. It is just a buying opportunity. Traders expect it to occur automatically, and they don't even really think about the fundamentals that are occurring. It is a price pattern that works, and until it stops working that behavior isn't going to change.
One important thing to keep in mind right now is that we often see holiday trading around the Thanksgiving break. It is a self-fulfilling thing, as traders expect some stocks to make big moves. Shorters stand aside and the hot money flocks to certain names that are generally not very high quality.
Yesterday we saw KaloBios Pharmaceuticals (KBIO), Aeterna Zentaris (AEZS), e-future Information Technology (EFUT) and Can-Fite BioPharma (CANF) attract trading attention. There are always a few movers like this, but the holiday trading often accentuates the action, as the bears don't even try to catch a reversal.
That wild speculative action tends to help the overall mood as well. This market is a bit extended and momentum is slowing, but sentiment is positive and it is likely that there will be underlying support. The trading action may be narrow, but traders are going to create some action.
Overall, the indices look rather bland, but they are holding, and holiday trading should keep things interesting. The headlines about the Russian jet are hurting at the moment, but I expect to see that shrugged off like all other bad news has been lately.