Extended markets can consolidate by either pulling back or by churning. Pullbacks give us better volatility, which makes for interesting trading, while churning produces slow, random action that makes it tough to do much. There is no doubt that what we have is a churning consolidation.
The indices barely budged, and breadth ended up on the weak side, with 2,670 gainers to 2,900 losers. A few speculative small-caps were moving around, such as Camtek (CAMT) and Fuel-Tech (FTEK), but the momentum was pretty limited, and there was little action in the big caps.
The bulls will tell us that this is just a healthy rest before we make the big run to wrap up the year. The bears will tell us that this is a tired market and that this stalling is a sign that profit-taking will soon accelerate.
The bears have been consistently wrong so often this year that it is tough to give them much respect. It has been quite clear that if you want to be negative, you better wait for some weak price action first. This market may be slow and boring, but there isn't any reason to believe that it is topping out.
Have a good evening. I'll see you tomorrow.
Nov. 25, 2013 | 2:02 PM EST
Positive, but Slow, Action
- This market needs a hard shake.
Once again, the action is generally positive but painfully slow. Breadth is now slightly positive and there is a good mix of green on the screens, but if you are looking for action, you probably should try to catch some pre-Black Friday deals at the mall. It is just mind-numbingly slow.
Back in the days before the Great Recession, we often had some of the best trading action on days when the indices were flat. Traders would gravitate toward a small number of active stocks and that would create volatility, which in turn made for good trading.
That still occurs to some degree, but the pockets of momentum in a dull market are extremely limited these days. Part of that seems to be caused by too many traders trying to get a jump on each other, which kills trades before they even get going. But I suspect machine trading is undermining the behavior that was caused by good old-fashioned human emotion.
Whatever the reason, flat days are more likely to be boring than rewarding. I'm going to keep digging and see what I find. I have a few things on watch, like Anika Therapeutics (ANIK) and Relypsa (RLYP), but this market needs a hard shake and stronger emotions if we are going to have more interesting trading.
Nov. 25, 2013 | 10:53 AM EST
Too Much Froth
- And not enough energy in this market.
The bulls didn't have the juice to build on the hot Monday morning open. Quite often this year, the bears that faded a gap-up open like this one have been burned, but this market has too much froth and not enough energy to build good follow-through momentum.
The indices are around flat and breadth is about even, which makes for boring trading. There's leadership in biotechnology, restaurants and banks, but social media stocks like Facebook (FB), Twitter (TWTR) and Yelp (YELP) are being hit hard, and oil and solar energy are down on the Iran deal.
The problem with this action is it doesn't create many new trading opportunities. Conditions aren't weak enough for aggressive shorts, but upside momentum is too limited for a chase. Virtually everything on my screen is off early highs.
There is definitely a rotation as many of the stocks that led earlier this year are acting very poorly, but the new leadership is not in stocks that tend to lead for long in a roaring bull market. We'll just have to watch and see how it develops.
Nov. 25, 2013 | 8:31 AM EST
Watching for Continued Froth
- The market does tend to be upbeat during Thanksgiving week.
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.
As we kick off the week, the big question is: Can the typically upbeat trading during Thanksgiving week can keep this frothy market running?
Although the action has been slow in many respects, it has been straight up, and we've heard constant talk about a continued upward trend into the end of the year. As they have done all year long, the bears continue to grumble about the various issues, especially valuation -- yet the market has continued finding reasons to continue its climb.
Last week we saw a slight hiccup on renewed worries about the prospect of the Fed tapering stimulus, but that was forgotten the next morning. Worries about budget battles in Washington don't seem to be of any immediate concern, and this Monday morning we now have the boost of an Iran deal that is driving down oil and boosting markets worldwide.
The biggest negative is that many stocks are extended on thin volume. That is a condition that has existed at a constant rate this year, and it really has been a mistake to focus on it. The one old adage that has definitely applied in 2013 is that overbought markets can become even more overbought.
As I've often noted, markets at their high don't just suddenly fall apart and go straight down. It takes a while for tops to form, and that is way the anticipatory bears have done so poorly this year. Trying to call a top has been impossible, and building up shorts in hopes of a turn has been a major destroyer of capital this year.
This somewhat frothy action makes for an interesting setup for this Thanksgiving week, which will quite often see some excellent speculative trading, perhaps because folks are feeling festive. As we approach the holiday, traders are always looking for some thin, small-cap story stock that can gun up amid thinner trading. Friday's half day tends to see little trading volume, but there are usually a few stocks "in play."
I've been complaining an awful lot lately about my difficulty in finding new picks. A big part of that is because the market is undergoing a rotation. Groups such as cable and semiconductors have been showing more life, while social media and some of the biotechnology names have slowed.
My game plan is to watch for signs of "holiday trading," and to see if we can catch some of the action. I see no reason to dwell on reasons why the market can't continue its positive action. There is just no money in the pessimistic view right now -- so we might as well play the trading game as best we can, even if we have qualms about the overall market action.
We have a good start on the news out of Iran, but the hard part will be finding places to put idle cash.