The better-than-expected employed data kept a bid under the market but the bulls were unable to do much with the good news. The pattern lately has been very strong underlying support but minimal upside progress. Even with the news catalyst today, we were unable to break that pattern.
The market's refusal to downtick is certainly bullish but the limited upside movement can be spun by the bears as stalling action. The bears have been so frustrated by this market for so long they are desperate for anything negative. They even dragged out the "Hindenburg Omen" again but it is difficult to see how the market can continue to keep running without even some minor corrective action. You could have said the same weeks ago and would have paid a price for wondering.
I suspect that there are a large number of market players like me who are staying bullish because that is what is working. But we would really like to see a good washout to shake things up and give us some new setups for the end of the year. This grind higher produces gains but it makes aggressive action difficult.
There are two big themes at work right now that are helping to keep this slow uptrend going. One is performance anxiety. With just three weeks left in the year, it is at extreme levels. The other is complacency. No one is really worried about any major downside in the near term and that is keeping a bid under the market.
Those two themes are very dangerous. If the market starts to slip there will be many folks trapped and they are going to cause some damage when they try to escape. However, for now, the trend is upward and, until there is some actual price weakness, we need to respect it.
Have a great weekend. I'll see you on Monday.
Dec. 5, 2014 | 10:20 AM EST
It's Futile to Fight This Market
- The 'good news is bad news' argument doesn't stick.
The usual pessimists are finding flaws in the jobs news and the bears are hoping that we will finally have a "good news is bad news" reaction to the numbers, but once again it is proving futile to fight this market. The reaction to the big beat is a bit tepid, but the buyers are still actively looking for places to put more cash.
Breadth is running 3100 gainers to 2000 decliners, but is much stronger on the Nasdaq. Biotech, retail, solar energy and financials are all doing well, while oil and gold are the primary laggards. The momentum screens look solid and you really have to be a contrarian to fight this price action.
What will be a concern is if we take out the early lows. That will raise some worries about the "good news is bad news" argument and may trigger some profit taking. There are plenty of folks that would like to do some selling, but they need a reason.
I keep working to find some setups and it is not easy. I've taken positions in Wisdom Tree Investments (WETF) and Infinera (INFN) this morning and started to rebuild Alibaba (BABA) a little, but I'm not able to be very aggressive. My refrain for a while has been to keep on digging and that continues to be the theme.
Dec.05, 2014 | 08:18 AM EDT
Is the Trend Your Friend?
- If so, then this is a very friendly market.
Happiness is a continuation of happenings which are not resisted. --Deepak Chopra
The market danced around yesterday to the European Central Bank (ECB) interest rate announcement and speculation over European quantitative easing QE but, overall, it was meaningless action. We saw some slight pressure early when ECB President Mario Draghi was rather vague about the ECB plans but as rumors circulated later in the day the buyers showed up again.
For man weeks now, the market has had amazingly strong underlying support and yesterday was no different. The bears were hoping that the ECB news would provide an excuse for some selling, but all it did was provide a brief dip for buying.
This morning, the news focus shifts to the monthly jobs report. Recently, the jobs news hasn't had as much impact on the market. Part of that is because it has shown a pretty steady trend toward gradual improvement and it isn't influencing the Fed very much. The Fed is on a clear path to raise interest rates at some point next year and, unless the jobs news is dramatically out of line, that isn't going to change much.
There is talk that a very strong report may speed up the Fed's interest rate hikes but the focus recently has been more on inflation. The jobs news is not seen as being a clear reflection of what is really going on in the economy. Despite the politic spin about how things are improving, there are still tremendous flaws in what has been the weakest economic recovery since the Great Depression.
Another reason the jobs news is having less impact is that the poor economic growth in Europe and China is offsetting the need for the Fed to do anything. QE programs overseas are offsetting the winding down of QE in the U.S. The market isn't as concerned about the Fed for that reason.
Even though the jobs news hasn't been quite as important lately, there is still the potential for it to serve as a catalyst. The bears are hoping once again that it may help to give us a "sell the news" reaction but the market seldom has that sort of response to news these days. We tend to see some initial weakness on major news but then the dip-buyers show up and the market goes right back up.
The most worrisome thing about this market right now isn't the potential for negative news but that no one really seems to expect anything negative. CNBC is full of chatter about how it is inevitable that the DJIA will hit 18,000. Many seem absolutely convinced that the combination of positive momentum, seasonality and performance anxiety will keep us on track into the new year.
If the trend is your friend, then this is a very friendly market.
We'll see what the jobs news brings. I suspect buyers will be in rush to jump on any early weakness.